Price Mechanism

Question 1

Determinants of Demand for Labour (4)

Answer 1

1 Demand for final product
2 Productivity of Labour
3 Technology
4 Price and availability of sub input

Question 2

Determinants of Supply for Labour (2)

Answer 2

1 Number of qualified people
2 Non wage component

Question 3

Reasons for Wage Differentials (3)

Answer 3

1 Labour immobility
2 Non-Monetary factors
3 Imperfect information

Question 4

Define Utility

Answer 4

Utility refers to the satisfaction(benefit) that consumers get from consuming a good/service

Question 5

Define Marginal Utility

Answer 5

Marginal Utility is the additional satisfaction that consumers derive from consuming an additional unit of a good

Question 6

Define Price Mechanism

Answer 6

The use of price signals to allocate scarce resources among competing uses is known as the price mechanism

Question 7

Define Demand

Answer 7

Demand is the amount of a good or service that consumers are both willing and able to buy at each possible price in a given period of time, c.p

Question 8

Define Quantity Demanded

Answer 8

Quantity demanded refers to a particular quantity that the consumer is willing and able to buy at a particular price, as reflected by a point on a given demand curve

Question 9

State the Law of Demand

Answer 9

The law of demand states that in a given time period, the quantity demanded of a product is inversely related to its price, c.p

Question 10

Define Individual Demand

Answer 10

Individual Demand is the demand of one consumer

Question 11

Define Market Demand

Answer 11

Market demand is the sum of the individual demand schedules of all consumers in the market

Question 12

Non Price Determinants of Demand(6)

Answer 12

1 weather/seasonal factors
2 expectations of producers
3 technology
4 price of related goods + population size
5 income of consumers + ease of borrowing
6 government policies
7 number of sellers

Question 13

Define Normal Goods and Inferior Goods

Answer 13

Normal goods are goods whose demand varies directly with consumer’s income
Inferior goods are goods whose demand varies inversely with consumers’ income

Question 14

Define substitutes and complements

Answer 14

Substitutes in consumption are goods that can be used in place of one another for the satisfaction of a particular want
Complements in consumption are goods used in conjunction with one another in the satisfaction of a particular want

Question 15

Define Derived Demand

Answer 15

Derived demand is the demand for a factor of production that results from the demand for a final good

Question 16

Define Supply

Answer 16

Supply is defined as the amount of a good or service that producers are both willing and able to sell at each possible price in a given period of time, c.p

Question 17

Define Quantity Supplied

Answer 17

Quantity supplied refers to a particular quantity offered for sale at a particular price, as reflected by a point on a given supply curve

Question 18

State the Law of Supply

Answer 18

The law of supply states that in a given time period, the quantity supplied of a product is directly related to its price, c.p

Question 19

(4_Define Law of Diminishing Marginal Utility

Answer 19

the LDMU states that beyond a certain point of consumption, as more and more units of a good or service are consumed, the additional utility derived from each additional unit consumed falls

Question 20

Reasons for the Law of Supply (2)

Answer 20

1 Firms are profit motivated
2 Higher prices increase the ability to supply a good or service pg22

Question 21

Define Individual Supply and Market supply

Answer 21

An individual supply refers to the supply of one producer
Market supply is the sum of the individual supply schedules of all the producers in the market

Question 22

Non Price Determinants of Supply(7)

Answer 22

Weather conditions
Expectations of producers
Technology
Price of related goods
Input prices
Government policies
number of Sellers

Question 23

Competitive supply

Answer 23

Goods that are in competitive supply are those that use similar resources for production

Question 24

Joint supply

Answer 24

Goods in joint supply are goods that are also produced when the other is produced

Question 25

Define a Market

Answer 25

A market can be defined as an arrangement whereby buyers and sellers can negotiate to exchange good, services or factors of production at an agreed price

Question 26

Define Market Equilibrium

Answer 26

Market equilibrium is when quantity demanded equals quantity supplied. It is at a state of rest where there is no tendency for any change

Question 27

Define Consumer Surplus

Answer 27

Consumer surplus is the difference between the maximum amount consumers are willing and able to pay for a good or service and the amount actually paid for it

Question 28

Define Producer Surplus

Answer 28

Producer surplus is the difference between the amount producers actually receive for a good or service and the minimum amount they are willing and able to accept for it

Question 29

Define Wage Rate

Answer 29

Wage rate is defined as the compensation for labor per period of time

Question 30

Define Wages

Answer 30

Wages are the total payments for the services rendered by labour

Question 31

Define PED

Answer 31

PED measure the degree of responsiveness of quantity demanded of a good to a change in its price, c.p

Question 32

PED = 0

Answer 32

Perfectly price inelastic demand

Question 33

PED < 1

Answer 33

Price inealstic demand

Question 34

PED > 1

Answer 34

Price elastic demand

Question 35

PED = 1

Answer 35

Demand is unitary price elastic- a change in price leads to a proportional change in qd, c.p

Question 36

PED = infinity

Answer 36

Demand is perfectly price elastics

Question 37

Determinants of PED(4)

Answer 37

Time period
Proportion of income spent on good
Degree of necessity
Degree and availability of substitutes

Question 38

Determinants of PES(4)

Answer 38

Time period
Availability of spare capacity and stocks
Mobility of FOP
Perishability of goods

Question 40

Define YED

Answer 40

The income elasticity of demand measures the degree of responsiveness of demand for a good, to a change in consumers’ income, c.p