Supply and Demand

Question 1

4 types of demand and what they mean:

Answer 1

Effective demand = the ability and willingness to buy a product.
Latent demand = when either the willingness or the ability to buy a product is missing (usually the latter).
Derived Demand = when something is not demanded for itself, but for what it can provide.
Joint Demand = When the demand for a product involves another.

Question 2

Conditions that affect the level of demand (ie. shifts the demand curve)

Answer 2

1. Real Income
2. Prices of other goods.
3. Taste and Preferences.
4. Interest Rates.
5. Utility.
6. Population changes.
7. Advertising and Marketing.

Question 3

Conditions that affect the level of supply (ie. sifts the supply curve)

Answer 3

1. Changes in production costs.
2. Gov intervention through taxes and subsidies etc.
3. Changes in production technology
4. Changes in the price of substitutes of production.

Question 4

Price elasticity of demand?

Answer 4

The proportionate responsiveness of the quantity demanded to a change in price.
NOTE: YOU Q BEFORE YOU P

Question 5

PED = 0 means...
PED = 0>-1 means....
PED = -1 means...
PED < -1 means...
PED = - infinity means....
PED > 0 means...
PED < 0 means...

Answer 5

Perfectly Inelastic
Inelastic
Unit elastic
Elastic
perfectly elastic
veblen good
normal good

Question 6

Cross Price Elasticity of Demand

Answer 6

The proportionate responsiveness of quantity demanded of a product to a price change in a different product.

Question 7

XED > 0 means…
XED < 0 means…
XED = 0
XED between 0 and 1 (negative or positive)
XED = 1 (negative or positive)
XED greater than one (negative or positive)

Answer 7

Substitute
Complement
No relationship
Weak relationship
proportional relationship
strong relationship

Question 8

Income Elasticity of Demand

Answer 8

The proportionate responsiveness of the quantity demanded of a produce to a change in the real disposable income.

Question 9

YED > 0 means...
YED < 0 means...
YED = 0 means ...
YED between 0 and 1
YED = 1 means...
YED > 1 means...

Answer 9

Normal good
inferior good
total necessity
basic good
basic good
superior good

Question 10

Price elasticity of supply

Answer 10

the Proportionate responsiveness of the quantity of supply to a change in price.

Question 11

Factors affecting PED (7)

Answer 11

1. Availability of substitutes/ complements
2. Habit forming goods
3. Time horizon (trends etc)
4. % of income spent on good.
5. Number of uses for the good.
6. Brand loyalty.
7. Form of Payment.