Theme 2.1 Price Mechanism and its Applications

Question 1

what is market demand?

Answer 1

it is the summation of individual demand

Question 2

what is market supply

Answer 2

is the the summation of individual demand

Question 3

what is the law of demand

Answer 3

the law of demand states that there is an inverse relationship between price and quantity demanded

Question 4

explain the law of diminishing utility

Answer 4

states that beyond a certain point of consumption, as more units of good is consumed, the additional utility a consumer derives from successive units decrease

Question 5

is the demand curve upwards or downwards

Answer 5

downwards

Question 6

is the supply curve upwards or downwards

Answer 6

upwards

Question 7

what are the determinants of demand? (acronym)

Answer 7

Tastes and preferences
Yield of house hold income
Government policies
Expectations of future income and prices
Prices of Related Goods

Question 8

what is the law of supply?

Answer 8

the law of supply states that there is a direct relationship between the price and the quantity supplied of a good. As price increase, the quantity supplied will increase and as price decrease, quantity supplied will decrease