Microeconomics Booklet Two - Y12

Question 1

Competitive demand

Answer 1

The relationship between two goods that are substitutes.

Question 2

Complements

Answer 2

Goods that are bought and consumed together, such that an increase in the price of one will lead to a fall in the demand for the other (XED is negative).

Question 3

Composite demand

Answer 3

When a good is demanded for more than one distinct purpose/use.

Question 4

Consumer surplus

Answer 4

The difference between the market price and the maximum price that a consumer would have been willing to pay.

Question 5

Contraction of demand

Answer 5

A movement along the demand curve whereby an increase in price leads to a reduction in quantity demanded.

Question 6

Contraction of supply

Answer 6

A movement along the supply curve whereby a fall in price causes a reduction in quantity supplied.

Question 7

Cross-price elasticity of demand

Answer 7

A measure of the responsiveness of the quantity demanded of one good to a change in the price of another good.

Question 8

Demand

Answer 8

The quantity of a good or service that people are willing to buy at a given price, in a given time period.

Question 9

Demand curve

Answer 9

A graphical representation of the relationship between price and quantity demanded, usually downward-sloping due to the law of demand.

Question 10

Demand is price elastic

Answer 10

Quantity demanded changes more-than-proportionately to a change in price

Question 11

Demand is price inelastic

Answer 11

Quantity demanded changes less-than-proportionately to a change in price.

Question 12

Diminishing marginal utility

Answer 12

The consumption of an additional unit of a good yields less utility than the consumption of the previous unit

Question 13

Derived demand

Answer 13

When a good is in demand as a result of the demand for something else, usually because the first good can be used to produce the second

Question 14

Effective demand

Answer 14

The willingness to buy, backed by the ability to pay.

Question 15

Elasticity

Answer 15

A measure of the responsiveness of one variable to a change in the price of another

Question 16

Excess demand

Answer 16

The quantity demanded exceeds the quantity supplied, indicating that the current price is below the equilibrium price

Question 17

Excess supply

Answer 17

The quantity supplied exceeds the quantity demanded, indicating that the current price is above the equilibrium price.

Question 18

Extension of demand

Answer 18

A movement along the demand curve whereby a decrease in price leads to an increase in quantity demanded.

Question 19

Extension of supply

Answer 19

A movement along the supply curve whereby an increase in price causes an increase in quantity supplied

Question 20

Income elasticity of demand

Answer 20

A measure of the responsiveness of the quantity demanded for one good to a change in income(s)

Question 21

Inferior good

Answer 21

A good for which demand decreases as incomes rise and increases as incomes fall (YED is negative).

Question 22

Joint demand

Answer 22

The relationship between two goods that are complements

Question 23

Joint supply

Answer 23

When an increase in the supply of one good leads to an increase in the supply of another

Question 24

Law of demand

Answer 24

An increase in price will lead to a fall in quantity demanded, a fall in price will lead to an increase in quantity demanded (ceteris paribus).

Question 25

Law of supply

Answer 25

An increase in price will lead to an increase in quantity supplied and a decrease in price will lead to a decrease in quantity supplied

Question 26

Luxury good

Answer 26

A normal good for which demand is income elastic (YED >+1).

Question 27

Market

Answer 27

The “place” where buyers and sellers of a good or service interact for the purposes of exchange.

Question 28

Market forces

Answer 28

The interaction of supply and demand to determine outcomes within a market (as opposed to the effects of intervention by the government).

Question 29

Market-clearing price

Answer 29

The price at which nobody wishes to buy or sell but cannot – there is neither excess demand nor supply

Question 30

Market equilibrium

Answer 30

A situation where the demand for and supply of a good are equal, such that there is no tendency for price or quantity to change (without a change in supply or demand)

Question 31

Normal good

Answer 31

A good for which demand increases as incomes rise and decreases as incomes fall (YED is positive).

Question 32

Price elasticity of demand

Answer 32

A measure of the responsiveness of the quantity demanded of a good to a change in its price.

Question 33

Price elasticity of supply

Answer 33

A measure of the responsiveness of quantity supplied to a change in price.

Question 34

Producer surplus

Answer 34

The difference between the market price and the minimum price that a seller would have been willing to sell at

Question 35

Substitute

Answer 35

A good that can be used for the same purpose as another (therefore the two goods are in competitive demand), such that an increase in the price of one good leads to an increase in demand for the other (XED is positive

Question 36

Supply

Answer 36

The amount of a good or service that sellers are willing and able to sell at a given price.

Question 37

Supply curve

Answer 37

A graphical representation of the relationship between price and quantity supplied, it is usually upward-sloping due to the law of supply