Price determination in a competitive market

Question 1

Define demand

Answer 1

The total quantity of a good or service that consumers are willing and able to purchase at any given time

Question 2

Give 7 reasons for the demand curve shifting

Answer 2

Population
Income
Related goods
Adverts
Taste and fashion
Expectations
Seasons

Question 3

What does the acronym PIRATES give

Answer 3

Reasons for the demand curve shifting

Question 4

Give the formula for price elasticity of demand

Answer 4

PED=%▵QD
%▵P

Question 5

Define an elastic good

Answer 5

A good that is very responsive to change in price
- a change in price leads to a bigger change in demand

Question 6

Draw a diagram for a good at PED>1

Question 7

What PED would a price elastic good have

Answer 7

A PED>1

Question 8

Define a price inelastic good

Answer 8

Its demand is relatively unresponsive to a change in price

Question 9

What PED would an inelastic good have

Answer 9

PED<1

Question 10

Define what a unitary elastic good is

Answer 10

▵Demand=▵Price

Question 11

What PED value would a unitary elastic good have

Answer 11

PED=1

Question 12

Draw a unitary elastic good diagram

Question 13

What happens to a perfectly inelastic good when price changes

Answer 13

The demand remains the same

Question 14

Draw a perfectly price inelastic good diagram

Question 15

Draw a perfectly elastic good diagram

Question 16

What is the PED of a perfectly elastic good

Answer 16

PED= infinity

Question 17

How does PED fall differently on consumers for elastic compared to inelastic goods

Answer 17

Indirect Taxes will be higher for inelastic goods as firms will put more of the tax burden due to the acknowledgement that price will not change demand

Question 18

Draw a graph to show an indirect tax on an inelastic good including burdens

Answer 18

https://pmt.physicsandmathstutor.com/download/Economics/A-level/Notes/AQA/Microeconomics/3-Price-Determination-in-a-Competitive-Market/b)%20Price,%20income%20and%20cross%20elasticities%20of%20demand.pdf

Question 19

Outline the formula for income elasticity of demand(YED)

Answer 19

YED=%▵QD
%▵Y

Question 20

Explain what an inferior good is

Answer 20

They see a fall in demand as income increases.EG Tessie PB

Question 21

What would the value of YED be for an inferior good

Answer 21

YED<0

Question 22

Describe what a normal good is

Answer 22

Demand increases along with Income

Question 23

What would the value of YED be for a normal good

Answer 23

YED>0

Question 24

Describe what a luxury good is

Answer 24

A good thats demand increases significantly as income increases

Question 25

What would the YED value be for a luxury good

Answer 25

YED>1

Question 26

Give the formula for cross elasticity of demand

Answer 26

XED=%▵QD of good A %▵P of good B

Question 27

What does cross elasticity of demand measure

Answer 27

how responsive the change in demand for one good is to the price of another

Question 28

What goods have negative XED values

Answer 28

Complements

Question 29

Draw a graph to show two goods that are complementary( strong and weak complementary)

Answer 29

..

Question 30

What would the XED value of an unrelated good be

Answer 30

0 as there is no correlation

Question 31

Define supply

Answer 31

The quantity of a good or service that a producer is willing and able to supply at any given moment at a given price

Question 32

Name the 7 factors that affect supply

Answer 32

Productivity Indirect taxes Number of firms Subsidies Weather Cost of production

Question 33

Define price elasticity of supply

Answer 33

The responsiveness of a chnage in supply to a change in prrice

Question 34

Give the formula for calculating PES

Answer 34

PES= %▵QS %▵P

Question 35

What does elastic supply mean

Answer 35

Supply can be changed quickly at little cost

Question 36

What would the numerical value for an inelastic supply

Answer 36

PES<1

Question 37

Draw a perfectly inelastic supply of a good diagram

Question 38

Draw a perfectly inelastic supply diagram

Question 39

Define joint demand

Answer 39

when goods are bought together EG Xbox and controller

Question 40

Define composite demand

Answer 40

When the good demanded has more than one use, EG milk

Question 41

Define derived demand

Answer 41

When the demand for one good is linked to a related good EG brick demand is derived for the demand for houses

Question 42

Define joint supply

Answer 42

When supply of one good causes the incr/decr of supply for another good EG wool and lamb