Section 2 - Competitive Markets

Question 1

What is a market?

Answer 1

Anywhere buyers and sellers can exchanges goods or services

Question 2

How do markets have influence on supply, demand, price and quantities?

Answer 2

The price changed for and quantity sold for each good or service are determined by the levels of demand and supply within the market

Question 3

What is the definition of demand? + what does a demand curve show

Answer 3

The quality of a good/service that consumers are willing and able to buy at a given price, at a particular time

A demand curve represents the relationship between price and quantity demanded. At any given point along the curve, it shows the quantity of the good or service that would be bought at a particular price

Question 4

What is the relationship tween price and quality demanded?

Answer 4

Negative correlation (inverse)

Question 5

What is the key language that can be used to explain the relationship between price and quantity demanded?

Answer 5

The law of diminishing marginal utility

Question 6

What shift is there is there is an 1. Incr or 2. Decr in demand?

Answer 6

1. Shift right
2. Shift left

Question 7

CAUSE OF SHIFTS FOR DEMAND FROM CHARLTON POWERPOINTS

Question 8

What is the definition of a normal good?

Answer 8

A good which people demand more of if their real income increases. This means that a rise in real income causes demand to increase (people want to buy more of the good at each price level

Question 9

What is the definition of an inferior good?

Answer 9

E.g. cheap clothing which people demand less of as their real income increases. Decreased demand as they’ll switch to a more expensive good instead

Question 10

What does a change in price do to a demand/supply curve?

Answer 10

Causes movement along a curve, not a shift in the curve

Question 11

What is the definition of a substitute good?

Answer 11

Goods which are alternatives of each other. An increase in the price of one good will lead to a decrease in the demand for it and increase the demand for its substitutes (also known as competitive demand)

Question 12

What is the definition of complementary goods?

Answer 12

Goods that are often used together so they’re in joint demand. If the price for one increases, demand will decrease and therefore demand for the other product with also decrease

Question 13

What is derived demand?

Answer 13

The demand for a good or FofP used in making another good or service. When the demand for a good increases as it is needed to produce a good that’s demand has increased

Question 14

What is composite demand?

Answer 14

When goods have the same use. E.g. oil can make either plastics or fuel

Question 15

What is elasticity of demand?

Answer 15

A measure of how much the demand for a good changes with a change in one of the key influences of demand (price, level of real income + price of another good)

Question 16

What is the equation for PED?

Answer 16

% change in Qd / % change in price

Question 17

Why is PED usually negative?

Answer 17

Because demand falls as price increases for most goods

Question 18

What does PED have to be between to be elastic?

And why

+ what does perfectly elastic PED look like illustrated?

Answer 18

PED > 1

Means a % change in price will cause a larger % change in demand and the higher the PED, the more elastic

Perfectly elastic PED is a straight horizontal line (infinite PED)

Question 19

What does PED have to be between to be inelastic?

And why

+ what does perfectly inelastic PED look like illustrated?

Answer 19

0 < PED < 1

A % change in price, will cause a smaller % change in Qd

Perfectly horizontal line (PED of 0)

Question 20

What does unit elasticity mean when linked to PED?

Answer 20

When PED = +/- 1

When the % change in price is equal to the % change in demand

Question 21

What is Income Elasticity of Demand (YED)?

Answer 21

Measures how much the demand for a good changes with a change in real income

Question 22

What is the equation for YED?

Answer 22

%change in Qd of a good / % change in real income

Question 23

What does YED equal if the good is inelastic?

Answer 23

YED < 1

Question 24

What does YED equal if the good is elastic?

Answer 24

YED > 1

Question 25

In YED, what do the + or - signs mean?

Answer 25

Nothing, it will always be a negative value

Question 26

What is Cross Elasticity of Demand (XED)?

Answer 26

A measure of how the quantity demanded of one good responds to the change in the price of another good

Question 27

What is the equation for XED?

Answer 27

% change in Qd of good A / % change in price of good B

Question 28

What does it mean if PED is positive or negative?

Answer 28

Positive
- substitutes

Negative
- complements

Question 29

What are the 4 key factors that influence the price elasticity of demand?

Answer 29

1. Substitutes
2. Type of good/service
3. % of income spent on good
4. Time

Question 30

CONTINUE P20

Question 31

P21

Question 32

What is the definition of supply?

+ what does the supply curve show

Answer 32

The quantity of a good or service that producers supply to the market at a given price, at any particular time

The relationship between price and quantity supplied

Question 33

Which direction does the supply curve move when there is an 1. Increase or 2. Decrease in supply

Answer 33

Increase = shift left

Decrease = shift right

Question 34

WHAT CAN CAUSE SHIFTS TO A SUPPLY CURVE…. NNED TO FILL IN

Question 35

What is joint supply?

Answer 35

Is when the production of one good or service involves the production of another (or several others) - interrelated markets. E.g. if crude oil is refined to make petrol, this will also increase the supply of butane (which is made in the process)

Question 36

What is competitive supply?

Answer 36

Is where two (or more) alternative goods can be produced from the same factors of production (land, labour, capital). E.g. growing potato’s or wheat on the same land

Question 37

P24 ONWARDS