Price Determination in Competitive markets

Question 1

What are the factors affecting demand

Answer 1

PIRATES
- Population
- Income
- Related goods
- Advertising
- Expectation
- Seasons

Question 2

What is Diminishing Marginal Utility

Answer 2

Foe every extra unit of goods that are consumed the marginal utility (benefit derived) from that good decreases

Question 3

What is the price elasticity of demand equation

Answer 3

%∆Q/%∆p - responsive ness of a change in demand to a change in price

Question 4

PED value for elastic good

Answer 4

> 1

Question 5

PED value for inelastic good

Answer 5

<1

Question 6

what is the value of PED for
- unitary elastic
- perfectly inelastic
- perfectly elastic

Answer 6

1
0
infinity

Question 7

factors affecting Price elasticity

Answer 7

Never Say A Parrot Doesn’t Perform

• Necessity
• Substitutes
• Addictiveness
• Proportion of income spent

Question 8

what is the equation for income elasticity of demand

Answer 8

%∆Q/%∆y

Question 9

what is an:
- Inferior
- Normal
- Luxury good
and there YED values

Answer 9

• inferior - demand falls as incomes rise
  YED<0
• Normal food - Demand increases as incomes rise
  YED>0
• Luxury good - Demand increase is bigger than the initial increase in income
  YED>1

Question 10

what is the equation for cross elasticity of demand

Answer 10

XED = %∆Q of X/%∆P of Y

Question 11

what is a complement good and what is its XED value

Answer 11

Compliment good - if the price of one falls the quantity demanded of both increases
XED<0

Question 12

what is a substitute good
- what is its XED value
- What is special about the demand curve

Answer 12

• Substitute goods can replace other goods
• XED>0
• this means the demand curve is upward sloping due to the positive gradient

Question 13

What is XED value for unrelated goods

Answer 13

0

Question 14

why are firms interested in XED

Answer 14

it allows them to see the extent of there competition

Question 15

What are the factors affecting Supply

Answer 15

PINT b
- Productivity
- Indirect tax
- Number of firmsg
- Technology
- barriers

Question 16

what are three factors affecting PES

Answer 16

• Unused/mobility/availability of FOP
• total stock
• Time scale

Question 17

what is:
- Derived demand
- Composite Demand
- Joint Demand
- Joint supply

Answer 17

• Derived demand - when demand for a good or service is derived from the demand for another good or service
• Composite demand - When the good demanded has more than one use
• Joint Demand - when goods are bought together
• Joint supply - Increase of supply of 1 good will cause an increase in supply of another good