Session 2

Question 1

market clearing price

Answer 1

equilibrium

Question 2

market mechanism

Answer 2

tendency in a free market for the price to change until the market clears (until the quantity supplied and the quantity demanded are equal)

Question 3

elasticity

Answer 3

• measures the sensitivity of one variable to another

Question 4

the higher the price elasticity

Answer 4

the more sensitive consumers are to price changes

Question 5

infinitely elastic demand

Answer 5

consumers will buy as much as they can at a single price

Question 6

perfectly inelastic demand

Answer 6

consumers will buy a fixed quantity no matter the price

Question 7

cross-price elasticity

Answer 7

measures the responsiveness in the quantity demanded of one good when a change in price takes place in another good

Question 8

price elasticity of supply

Answer 8

the change in supply that occurs when there is a change in the products price

Question 9

point elasticity of demand

Answer 9

at a particular point on the demand curve

Question 10

arc elasticity of demand

Answer 10

the elasticity calculated over a range of prices

Question 11

price elasticity of demand

Answer 11

the change in demand that occurs when there is a change in the products price

Question 12

perfectly elastic

Answer 12

rise in price causes demand to fall to 0 and price elasticity is infinite

Question 13

determinants of price elasticity (4)

Answer 13

1. substitute goods
2. luxuries and necessities
3. market definition
4. time

Question 14

long run

Answer 14

usually more elastic as buyers have time to find substitutes and alter behaviour