Micro LS10-12

Question 1

Excess demand

Answer 1

When price of a good is lower than equilibrium price. More consumers want to buy the good than suppliers are willing to sell.

Question 2

Excess supply

Answer 2

When quantity supplied exceeds quantity demanded at current price.

Question 3

Direct tax

Answer 3

Tax levied directly on an individual or organisation

Question 4

Indirect tax

Answer 4

Tax levied on a good or service

Question 5

Specific tax

Answer 5

Causes parallel shift in supply curve. Same fixed amount at all prices e.g. fuel duty, beer duty

Question 6

Ad valorem tax

Answer 6

Causes a non parallel shift in supply curve. Tax increases as amount sold rises. E.g. VAT, import tariffs

Question 7

Why taxes

Answer 7

Governments impose taxes in order to raise government revenue and/or discourage certain economic activities

Question 8

Subsidies

Answer 8

Subsidy: grant given by government to encourage production

Governments give subsidies to firms in order to encourage production.

Question 9

PED

Answer 9

Measures the responsiveness of demand given a change in price

Question 10

Price elastic (demand )

Answer 10

When a change in price causes a proportionally larger change in demand.

Question 11

Determinants of PED

Answer 11

• number of substitutes
• necessity / luxury
• addictiveness
  -time (to find alternatives)
  -proportion of income spent on product

Question 12

PED formula

Answer 12

%change in quantity demanded / %change in price

Question 13

Determinants of PES

Answer 13

-time required to produce product
-level of spare capacity (FOP)
-number of stock/finished goods available
-time (time period)
-perishability of product
-obsolete stock