Slide 1.4-1.5

Question 1

Market

Answer 1

Any kind of arrangement where buyers and sellers of goods, services or resources are
linked together to carry out an exchang

Question 2

Competition

Answer 2

A process in which rivals compete in order to achieve some objective
- Occurs when there are many buyers and seller acting independently, so that no one
has the ability to influence the price at which the product is sold in the market

Question 3

Competitive markets

Answer 3

Competitive Markets
Composed of large numbers of sellers and buyers acting independently, so that no one
individual seller or small group of sellers has the ability to control the price of the
product sold

Question 4

Demand

Answer 4

Demand indicates the various quantities of a good that consumers (or a
consumer) are willing and able to buy at different possible prices during
a particular time period, ceteris paribus

Question 5

Cetris Paribus

Answer 5

Ceteris paribus is a Latin phrase that generally means “all other things being equal.” In economics, it acts as a shorthand indication of the effect one economic variable has on another, provided all other variables remain the same

Question 6

Law of Demand

Answer 6

There is a negative relationship between the price of a good and quantity the good demanded, over a particular time period, cetris paribus: as the the price of a good increases, the quantity of the good demanded falls (and vice-versa)

Question 7

Market Demand

Answer 7

Ceteris paribus is a Latin phrase that generally means “all other things being equal.” In economics, it acts as a shorthand indication of the effect one economic variable has on another, provided all other variables remain the same

Question 8

The law of diminishing marginal utility

Answer 8

The law of diminishing marginal utility
As consumption of a good increases, marginal utility, or the extra utility the
consumer receives, decreases with each additional unit consumed. This underlies
the law of demand, as it shows that a consumer will be willing to buy an additional
unit of a good only if its price falls.

Question 9

The substitution effect

Answer 9

If the price of a good falls, the consumer substitutes (buy more) of the now less
expensive good

Question 10

The income effect

Answer 10

Price falls, real income (purchasing power) increases

Question 11

Non price determinant of demand

Answer 11

Income, tastes and preferences, price of substitution good, price of complementary good, and the number of consumers

Question 12

Normal good when income goes up

Answer 12

• A good the demand for which varies positively with income (income ↑, demand↑)
• Most goods are normal goods
• Income ↑, rightward shift of

Question 13

Inferior good when income goes up

Answer 13

• A good the demand for which varies negatively with income (income ↑, demand↓)
• Second-hand goods, bus service etc.
• Income ↑, leftward shift of

Question 14

Price of substitutes affects the demand how when price of X (the sub) goes down?

Answer 14

• Price for X ↓ , demand for Y ↓ , leftward shift of D for Y
• The price of X and demand for Y change in the same directio

Question 15

The price of complementary goods when X goes down.

Answer 15

• Price for X ↓ , demand for Y ↓ , leftward shift of D for Y
• The price of X and demand for Y change in the same directio

Question 16

How does the number of consumers affect the demand curve

Answer 16

Number of consumers goes up then rightward shift of D