Microeconomics

Question 1

What is a market?

Answer 1

any kind of ARRANGEMENT where BUYERS and SELLERS of goods / services / resources are LINKED together to carry out an EXCHANGE

Question 2

What is competition?

Answer 2

many buyers & sellers act independently so that no one has the ability to influence the price @ which a product is sold in the market

therefore weaker power
therefore no control over price (supply & demand)

Question 3

What is market/monopoly power?

Answer 3

refers to the control that a seller may have over the price of the product they sell

therefore greater power & control

Question 4

What is demand?

Answer 4

AKA marginal benefit (benefit gained from each additional unit) & utility

demand OF AN INDIVIDUAL CONSUMER indicated the various quantities of a good/service the consumer is WILLING & ABLE TO BUY @ DIFFERENT POSSIBLE PRICES during a PARTICULAR TIME PERIOD, CETERIS PARIBUS

Question 5

What is the law of demand, ceteris paribus?

Answer 5

inverse relationship btw price & quantity of good/service

Question 6

What is market demand?

Answer 6

is the SUM OF ALL INDIVIDUAL DEMANDS FOR A GOOD/ SUM OF CONSUMERS’ MARGINAL BENEFITS.

The market demand CURVE ILLUSTRATES THE LAW OD DEMAND

Question 7

What are the non-price determinants of DEMAND that shift the curve?

Answer 7

1) income of buyers (normal & inferior goods)
2) prices of substitute & complementary goods
3) taste & preferences
4) demographic changes ( # of potential buyers)

Question 8

How does income of buyers affect the demand curve?

Answer 8

if a consumers’ income INCREASES their demand for a normal good would INCREASE, therefore RIGHTWARD shift

if a consumers’ income DECREASES their demand for a normal good would DECREASE, therefore LEFTWARD shift

THEREFORE INCOME & NORMAL GOODS ARE DIRECTLY PROPORTIONAL

if a consumers’ income INCREASES their demand for a inferior good would DECREASE, therefore LEFTWARD shift

if a consumers’ income DECREASES their demand for a inferior good would INCREASE, therefore RIGHTWARD shift

THEREFORE INCOME & INFERIOR GOODS ARE INVERSELY PROPORTIONAL (NEGATIVE CASUAL RELATIONSHIP

Question 9

How does prices of substitute & complementary goods affect the demand curve?

Answer 9

substitute good = 2 products (X & Y) considered substitute of satisfy similar need

if X price increases, demand for Y increases
if X price decreases, demand for Y decreases

THEREFORE X & Y DIRECTLY PROPORTIONAL

complementary goods (W & Z) = 2 goods considered complementary if used together

if W price increases, demand for Z decreases
if W price decreases, demand for Z increases

THEREFORE NEGATIVE CASUAL RELATIONSHIP

Question 10

What is the term used to describe change in price on demand curve?

Answer 10

change in quantity demanded

price does not shift curve, only moves along it

Question 11

What is the term given to describe the change in non-price determinant on demand curve?

Answer 11

change in demand

causes entire curve to shift