Price Mechanism - Interrelationship Between Markets

Question 1

What are markets?

Answer 1

Where buyers and sellers meet to exchange resources in order to achieve goals

Question 2

What is the price mechanism?

Answer 2

the means by which decisions of consumers and businesses interact to determine the allocation of resources

Question 3

What are the four main functions of the price mechanism?

Answer 3

Allocate
Rationing
Signalling
Incentives

Question 4

What does the function “allocate” mean in the price mechanism?

Answer 4

Allocating scarce resources among competing uses

Question 5

What does the function “rationing” mean in the price mechanism?

Answer 5

when there is a shortage of a product, price will rise and deter some consumers from buying the product

Question 6

What does the function “signalling” mean in the price mechanism?

Answer 6

changes in price provides information to both producers and consumers about changes in market conditions​

Question 7

What does the function “incentives” mean in the price mechanism?

Answer 7

this is when the price of a product rises, quantity supplied increases as business respond

Question 8

Competitive demand occurs when the demand for 2 products are in _______ to each other.

Answer 8

opposition

Question 9

What type of products have competitive demand?

Answer 9

Substitutes

Question 10

Describe the cross-elasticity of demand in goods with competitive demand.

Answer 10

High positive

Question 11

Goods with competitive demand have high, positive cross elasticity of demand.

What happens to demand for goods with competitive demand when the price of one increases?

Answer 11

The demand for the one with the price increase, decreases and the demand for the other good increases

Question 12

Joint demand occurs when the demand for two goods are __________

Answer 12

connected

Question 13

Describe the cross elasticity of demand for goods which have joint demand.

Answer 13

High negative

Question 14

What type of products are products with joint demand?

Answer 14

Complementary

Question 15

Goods with joint demand have a high negative cross elasticity of demand.

When the price of one of these goods increases what happens to the demand of both of the goods?

Answer 15

The demand for both products decreases

Question 16

Derived demand is the demand for a ______ of production used to produce another good or service.

Answer 16

factor

Question 17

In goods with derived demand, what happens to the demand of the other product when the demand of its counterpart decreases?

Answer 17

Decreases as well

Question 18

Composite demand is demand for a product which has more than one ___.

Answer 18

use

Question 19

In a good with composite demand, what happens to the supply of the alternative use when the demand for one particular use rises?

Answer 19

Decreases

Question 20

Joint supply is where the increase or decrease in the supply of one good leads to an increase or decrease in the supply of a _________

Answer 20

by-product