Price determination in a competitive market

Question 1

What is microeconomics?

Answer 1

Focusing on individual markets

Question 2

What is the difference between effective and latent demand?

Answer 2

Effective demand is something you want and can afford whereas latent demand is things you want but can’t afford

Question 3

What is demand

Answer 3

The amount that consumers are willing and able to buy at each given price point

Question 4

What is extension demand?

Answer 4

Increases in quantity demand caused by falls in price

Question 5

What is the opposite of extension in demand?

Answer 5

Contraction in demand

Question 6

What reasons are there for a shift in demand?

Answer 6

Changes in income
Advertising and publicity 
Prices of substitutes 
Prices of complementary products 
Changes in population 
Consumer confidence 
Changes in quality 
Weather conditions
The law 
Uncertainty over future prices 
Fashion
Interest rates
Consumer tastes and preferences

Question 7

What is the law of demand?

Answer 7

When the price of a good rises, the quantity demanded will fall

Question 8

What is a normal good?

Answer 8

When an increase in income leads to an increase in demand

Question 9

What is an inferior good?

Answer 9

When an increase in income leads to an decrease in demand

Question 10

What is derived demand?

Answer 10

When the demand for one good or service comes from the demand for another good or service. The good is a component of the other good.

Question 11

What is composite demand?

Answer 11

A good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the supply for the other purposes.

Question 12

What are the factors of production and what are they payed in?

Answer 12

Capital - Interest
Enterprise - Profit
Land - Rent
Labour - Wages