T1 - Introducing the Market

Question 1

Effective demand

Answer 1

The quantity that consumers are willing to buy at the current market price.

Question 2

What is demand when price is low?

Answer 2

Low as well, price and demand go together (contraction : smaller, expansion : bigger)

Question 3

Where does the demand curve shift in contraction?

Answer 3

Left

Question 4

Where does the demand curve shift in expansion?

Answer 4

Right

Question 5

Factors determining demand? (7)

Answer 5

Taste
Advertising and branding
Complementary goods
Distribution of income
Population
Price

Question 6

Determinants of supply

Answer 6

Costs of production
Price of product
State of technology
Taxes and subsidies
Entry and exit of rims

Question 7

Consumer sovereignty

Answer 7

Consumer decides what is produced and allocation of resources, indicators for businesses

Question 8

Excess supply

Answer 8

More supply than demanded

Question 9

Excess demand

Answer 9

More demand than supplied

Question 10

Market price

Answer 10

where supply and demand intersect

Question 11

Equilibrium

Answer 11

No excess between supply and demand

Question 12

Profit signalling mechanism

Answer 12

Price changes attract new entrants where there is potential for profit

Question 13

Market

Answer 13

Medium where buyers and sellers exchange goods and services competitively

Question 14

Price mechanism key parts

Answer 14

Signalling: price signals
Rationing: only those able and willing to pay
Incentives: profitability for firm, value for consumer

Question 15

Price mechanism definition

Answer 15

‘invisible hand’ guides resources towards production of what consumers buy

Question 16

Mass market

Answer 16

homogeneous, large quantities, used by most

Question 17

Niche market

Answer 17

specialised segments, particular needs/preferences

Question 18

Why are markets dynamic? (main reason)

Answer 18

changing technology (creative destruction)

Question 19

Resource allocation

Answer 19

1. Resource owners want profit so sell to highest bidder
2. Firm’s revenue used to bid for resource
3. Revenue depends on what consumers pay
4. What consumers pay depends on satisfaction they get
5. Consumers pay more for more satisfaction
6. Firms offering most satisfaction bid most, buy and use scarce resource