PRICE DETERMINATION + COMPETITIVE MARKETS- MICROECONOMICS

Question 1

Equilibrium price

Answer 1

EP- price at which planned demand for a good or service exactly planned supply

Question 2

Supply

Answer 2

S- quantity of good and services a firm is willing and able to produce at a given price in a given time period

Question 3

Demand

Answer 3

D- quantity of good and services that consumers are willing and able to buy at a given price over a given period of time.
-Law- as a goods price falls more is demanded, an inverse relatonship
->Downward slope due to income and substitution effect

Question 4

Determinants of demand

Non-price factors

Answer 4

Population
Advertising
Substitutes price
Income
Fashion
Interest Rates
Complements price

Shift the curve

Question 5

Normal goods

Answer 5

N- a good for which demand increases when incomes rise and decreases when incomes fall

Question 6

Inferior good

Answer 6

In- a good for which demand decreases as incomes rise and increases when incomes fall

Question 7

Price Elasticity of Demand

Answer 7

PED- measures the extent to which the demand for a good changes in response to a change in price

Question 8

PED equation

Answer 8

PED= /\Qd% / /\P%

Question 9

Income Elasticity of Demand

Answer 9

YED- measures the extent to which the demand for a good changes in response to a change in income

Question 10

Cross-Elasticity of Demand

Answer 10

XED- measures the extent to which the demand for a good changes in response to a change in price of another good

Question 11

XED equation

Answer 11

XED= /\Qa% / /\Pb%

Positive= substitutes, Negative= complements

Question 12

Determinants of PED

Answer 12

Substitutes (No.)
Percentage of Income
Luxury/ necessity
Addictive/ habitual
Time period

Question 13

Determinants of supply

Non price factors

Answer 13

*Productivity (Labour + capital)
*Indirect Tax
No. Firms
*Technology
*Subsidy
Weather
*Costs of production

Shifts curve
*=direct

Question 14

Costs of production

Answer 14

-Regulation (taxes)
-Cost of borrowing (interest)
-Wages
-Raw materials
-technical progress

Question 15

Price Elasticity of Supply

Answer 15

PES- extent to which the supply of a good changes in response to a change in price

Question 16

PES equation

Answer 16

PES= /\Qs% / /\P%

Question 17

Determinants of PES

Answer 17

-Production lag
-Stock
-Spare capacity
-Substitutability of FoPs
-Time

FoPs- factors of production

Question 18

PES Values

Answer 18

<1- inelastic
>1-elastic
0- perfectly inelastic
00- perfectly elastic
1- unit elastic

Question 19

Types of demand

JCLED

Answer 19

Joint- demand for one product generates demand for another
Composite- demand for one good reduces supply of another (relate to PPF)
Latent- consumer demand with no purchasing power from the consumer
Effective- demand backed up by consumer willingness and ability to pay
Derived- demand for one good or service which is a factor input for another