Price Determination in a Competitive Market - 3

Question 1

what causes a shift in the demand curve?

Answer 1

real disposable incomes, tastes, population, prices of substitutes and price of complementary goods

Question 2

what is the formula for PED?

Answer 2

percentage change in QD/ percentage change in price

Question 3

what is meant by PED

Answer 3

responsiveness of the quantity demanded of a good or service to a change in its price

Question 4

when PED is 0 what is it

Answer 4

perfectly inelastic

Question 5

when PED is infinite

Answer 5

perfectly elastic

Question 6

what are some detriments to price elasticity?

Answer 6

availability of close substitutes, percentage of income spent on product, nature of product, ie necessity or luxury.

Question 7

what is meant by YED

Answer 7

income elasticity of demand, responsiveness of demand to a change in income

Question 8

how do you calculate YED

Answer 8

percentage change in quantity demanded/ percentage change in real income

Question 9

How do you tell if something is a normal good?

Answer 9

YED is greater than 0

Question 10

How do you tell if something is an inferior good?

Answer 10

YED less than 0

Question 11

what is meant by a normal good

Answer 11

a rise in income will cause a rise in demand

Question 12

what I meant by an inferior good

Answer 12

a rise in income will cause a fall in demand

Question 13

what is the PED of a luxury good?

Answer 13

greater than 1

Question 14

what is the PED of a necessity good?

Answer 14

less than one but greater than 0

Question 15

what is XED

Answer 15

crosss elasticity of demand, responsiveness of the demand for a product compared to the price of another

Question 16

How do you measure XED

Answer 16

percentage change in the quantity demanded of good A / percentage change in the price of good B

Question 17

what does a positive value of XED show

Answer 17

that the products are close substitutes

Question 18

what does a negative XED show

Answer 18

that the products are compliments

Question 19

what causes shifts in the supply curve?

Answer 19

production costs, productivity, taxes on businesses, production subsidies, technology

Question 20

What is meant by PES?

Answer 20

price elasticity of supply, responsiveness of the quantity supplied of a good to a change in price

Question 21

how do you calculate PES

Answer 21

percentage change in quantity supplied/ percentage change in price

Question 22

what is the PES when supply is price inelastic

Answer 22

between 0-1

Question 23

what are some detriments of PES

Answer 23

time taken to expand supply, size of space capacity, available stock, ease of switching production.

Question 24

if the price is above the free market equilibrium what is there?

Answer 24

excess supply

Question 25

if the price Is below free market equilibrium what is there?

Answer 25

excess demand

Question 26

what is joint demand?

Answer 26

complementary goods, good that are demanded together

Question 27

what is joint supply?

Answer 27

production of one good is used in the production of another good

Question 28

what is composite demand?

Answer 28

when a good is demanded for more than one use

Question 29

what is derived demand?

Answer 29

when the demand for one good makes another good more demanded ie healthcare and doctors