TOPIC 1 - MARKETS

Question 1

WHAT ARE THE FUNCTIONS OF MONEY?

Answer 1

MEDIUM OF EXCHANGE
STORE OF VALUE
MEASURE OF VALUE ( UNIT OF ACCOUNT)
MEANS OF DEFERRED PAYMENTS

Question 2

WHAT IS MEDIUM OF EXCHANGE?

Answer 2

CAN EXCHANGE RATHER THAN SWAP PRODUCTS

Question 3

WHAT IS UNIT OF ACCOUNT?

Answer 3

WAY OF COMPARING VALUES

Question 4

WHAT IS STORE OF VALUE?

Answer 4

MONEY CAN BE SAVED AND USED LATER

Question 5

WHAT DOES MEANS OF DEFERRED PAYMENTS?

Answer 5

POSSIBLE TO PAY LATER FOR PRODUCTS E.G LOANS

Question 6

WHAT IS DEMAND?

Answer 6

DEMAND IS THE QUANTITY OF A GOOD OR SERVICE THAT A CONSUMER IS WILLING AND ABLE TO BUY AT ANY GIVEN PRICE OVER A PERIOD OF TIME.

Question 7

WHY DOES THE DEMAND CURVE SLOPE DOWNWARDS?

Answer 7

INCOME EFFECT
SUBSTITUTION EFFECT
DIMINISHING MARGINAL UTILITY

Question 8

WHAT IS THE SUBSTITUTION EFFECT?

Answer 8

IF PRICE OF A GOOD INCREASES, CONSUMERS ARE MORE LIKELY TO BUY CHEAPER ALTERNATIVES.

Question 9

WHAT IS THE INCOME EFFECT?

Answer 9

IF THE PRICE OF A GOOD INCREASES, CONSUMERS WON’T BE ABLE TO AFFORD IT AND HENCE CONSUMERS WON’T PAY AS MUCH.

Question 10

WHAT IS DIMINISHING MARGINAL UTILITY?

Answer 10

AS YOU CONSUME MORE OF A PRODUCT, AMOUNT OF SATISFATION PRODUCED BY EACH ADDITIONAL UNIT OF THAT GOOD DECLINES.

Question 11

WHAT ARE EXCEPTIONS TO EXPLANATIONS AS TO WHY DEMAND CURVES ARE DOWNWARD SLOPING? (extra)

Answer 11

VEBLEN GOODS
GIFFEN GOODS
ASYMETRIC INFORMATION
PANIC BUYING
SPECULATION

Question 12

WHAT IS CONSUMER SURPLUS?

Answer 12

DIFFERENCE BETWEEN HOW MUCH BUYERS ARE PREPARED TO PAY FOR A GOOD AND WHAT THEY ACTUALLY PAY.

Question 13

WHAT CAUSES A SHIFT IN DEMAND?

Answer 13

POPULATION
ADVERTISEMENT
SUBSTITUTES
INCOME
FASHION AND TRENDS
INTEREST RATES
COMPLEMENTS

Question 14

WHAT IS SUPPLY?

Answer 14

SUPPLY IS THE QUANTITY OF SELLERS WHO ARE WILLING AND ABLE TO SELL AT ANY GIVEN PRICE OVER A PERIOD OF TIME.

Question 15

WHAT CAUSES A SHIFT OF SUPPLY?

Answer 15

POLICIES AND REGULATIONS
INDIRECT TAXES
NUMBER OF FIRMS
TECHNOLOGY
SUBSIDIES
WEATHER
COST OF PRODUCTION

Question 16

WHAT IS PRODUCER SURPLUS?

Answer 16

THE DIFFERENCE BETWEEN THE MARKET PRICE WHICH FIRMS RECEIVE AND THE PRICE AT WHICH THEY ARE PREPARED TO SUPPLY.

Question 17

WHAT IS THE PRICE MECHANISM?

Answer 17

SHOWS HOW PRICE IS SET THROUGH THE INTERACTION OF DEMAND AND SUPPLY.

Question 18

WHAT IS THE INCENTIVE EFFECT?

Answer 18

CHANGES IN PRICE WILL INCENTIVISE EXISTING PRODUCERS TO ACT DIFFERENTLY

Question 19

WHAT IS AN EXAMPLE OF THE INCENTIVE EFFECT?

Answer 19

HIGHER OIL PRICES ENCOURAGE EXISTING PRODUCERS TO INCREASE OUTPUT.

Question 20

WHAT IS THE RATIONING EFFECT?

Answer 20

WHEN THERE IS INSUFFICIENT SUPPLY TO MEET DEMAND, A CHANGE IN THE PRICE WILL RATION THE RESOURCE BY CONSUMERS WILLINGNESS TO PAY

Question 21

WHAT IS AN EXAMPLE OF THE RATIONING EFFECT?

Answer 21

IF RARE FOOTBALL STICKERS ARE AUCTIONED ONLINE, THE PRICE MIGHT RISE TO THE POINT WHERE ONLY A FEW PEOPLE CAN AFFORD THEM.

Question 22

WHAT IS THE SIGNALLING EFFECT?

Answer 22

CHANGES IN PRICE INFORM ECONOMIC AGENTS WHERE RESOURCES ARE NEEDED AND ENCOURAGE ENTRY OR EXIT INTO THE MARKET.

Question 23

WHAT IS AN EXAMPLE OF THE SIGNALLING EFFECT?

Answer 23

IF PRICES ARE HIGH IN THE MARKET FOR SHIRTS THEN NEW PRODUCERS WILL ENTER THE MARKET TO ATTEMPT TO BENEFIT FROM THESE HIGHER PRICES.