Microeconomics Supply and Demand

Question 0

Consumer surplus

Answer 0

The difference between the value a consumer is prepared to pay for a good or service. And the price the good costs.
Price prepared to pay - market price

Question 1

Effective demand

Answer 1

The quantity of a product that consumers are willing and able to purchase at different market prices over a period of time.

Question 2

First law of demand

Answer 2

The lower the price the greater the quantity demanded.

Question 3

Ceteris paribus

Answer 3

All other factors being equal or unchanged.

Question 4

Movement along the demand curve is caused by?

Answer 4

The response to a change in price. An increase in price is an extension of QD, where as a decrease in price is a contraction.

Question 5

Conditions of demand….. Add

Answer 5

Non-price factors that affect the level of demand for a good or service.

Question 6

Shifts in the demand curve…. Add pics
What shift?
- Increase
- Decrease

Answer 6

When a change in non price factor leads to an increase or decrease in demand.

• Shift to the right/ outwards QD increases at every price.
• Shift to the left/ inwards QD decreases at every price.

Question 7

Price elasticity of demeaned (PED)

Answer 7

The responsiveness of quantity demanded of a good to a change in its price. % change QD / % change price

Question 8

Price elastic demand

Answer 8

When QD is very responsive to a change in price.

PED > 1

Question 9

Price Inelastic demand

Answer 9

When the QD is not very responsive to a change in price.

PED < 1

Question 10

Income elasticity of demand (YED)

Answer 10

A responsiveness in QD to a change in income.

YED = %change QD / % change income.

Question 11

What is a normal good?

Answer 11

An increase in income leads to an increase in demand for a good.
YED is positive.

Question 12

What is an inferior good?

Answer 12

An increase in income leads to a fall in demand for a good.

YED is negative.

Question 13

What does income elastic/ in elastic demand mean?

Answer 13

Elastic QD is very responsive to a change in income YED > 1

Inelastic YED < 1

Question 14

Cross elasticity of demand

Answer 14

The responsiveness of QD of good A to a change in price of another good.
XED = % change QD good A / % change in price good B

Question 15

Luxuries

Answer 15

YED > 1

When income rises QD is more than proportional.

Question 16

Necessities

Answer 16

YED < 1

When income rises QD is less than proportional.

Question 17

What are complementary goods?

Answer 17

2 or more goods with joint demand.

Question 18

What are substitute goods?

Answer 18

Goods which have competing demand.

Question 19

Effective supply

Answer 19

The quantity of a product that producers are willing and able to supply at different market prices over a period of time.

Question 20

Producer surplus

Answer 20

Difference between the market price, and the price they are willing to Accept.

Question 21

Movement along supply curve.
Extension
Contraction

Answer 21

Only response to a change in price.
Extension - increase in QS
Contraction - decrease in QS

Question 22

What are the conditions of supply?

Answer 22

Non price factors that affect the level of supply for a good or service.

Question 23

Tax - what are indirect and direct?

Answer 23

Tax levied on the consumption of a good or service. (VAT) - indirect
Tax (progressive) on income or other. - direct

Question 24

Incidence of taxation.

How does elasticity affect this?

Answer 24

The way in which the burden of tax is split between buyers and sellers - who pays the tax.
The more in elastic the D curve, the higher the tax paid by consumer.
Draw a graph to show this - elastic D and inelastic D.

Question 25

Price elasticity of supply (PES) and it’s determinants.

Answer 25

The responsiveness of QS of a good/service to a change in its price.
Equation: % Change in QS / % change in price.
Pirates? Look up in notes determinants

Question 26

Market equilibrium

Answer 26

Where QD = QS

Question 27

Disequilibrium

Answer 27

Any situation where in a market where demand and supply are not equal.

Question 28

What is a shortage?

Answer 28

An excess of demand over supply. QD > QS

Question 29

What is a surplus?

Answer 29

An excess of supply over demand. QS > QD