unit 2

Question 1

what is meaning of microeconomics

Answer 1

Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.

Question 2

what is macroeconomics

Answer 2

Macroeconomics is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and government spending to regulate an economy’s growth and stability. This includes regional, national, and global economies.

Question 3

what is demand

Answer 3

The willingness and ability of a consumer to purchase a good or service.

Question 4

what is law of demand

Answer 4

States that there is an inverse or negative relationship between price (P) and quantity demanded (Qd).

Question 5

what is supply

Answer 5

The willingness and ability of a producer to supply a good or service.

Question 6

what is law of supply

Answer 6

States that there is a direct or positive relationship between price (P) and quantity supplied (Qs).

Question 7

name the 6 non-price determinants of DEMAND

Answer 7

1. changes in disposable income
2. changes in consumer preference, taste, trends
3. changes in population
4. changes in weather/season
5. advertising
6. changes in price and availability of related goods and services

Question 8

define changes in disposable income

Answer 8

Gross income - Income tax = Disposable income
Increase in salary/wages = Increase disposable income = Increase demand
Increase in income tax = Decrease disposable income = Decrease demand

Question 9

define changes in consumer preference, taste, trends

Answer 9

Increasing popularity of a brand’s product= Increase demand
Negative controversy surrounding a brand = Decrease demand

Question 10

define changes in population

Answer 10

An increase in birth rates would increase the demand for baby goods and services such as pampers, milk formula, baby clothing etc.
An increase in death rates of elderly would increase the demand for coffins, flowers, funeral services and decrease the demand for nursing home services, elderly healthcare etc.

Question 11

define changes in weather/season

Answer 11

During rainy days/seasons, the demand for umbrellas, raincoats, rain boots will increase and the demand for paid outdoor activities like theme parks will decrease.
During cold days/seasons, the demand for jackets, scarves, hot beverages will increase and the demand for ice cream and cold beverages will decrease.

Question 12

define advertising

Answer 12

Successful advertising campaigns will increase the demand for a product.

Question 13

define changes in price and availability of related goods and services

Answer 13

Main product: Coke
Substitute: Pepsi (Strong substitute)
Increase in price of Pepsi = Decrease Qd of Pepsi = Increase D for Coke.

Question 14

define the complements

Answer 14

Main product: Toothbrush
Complement: Toothpaste (Strong complement)
Increase in price of toothpaste = Decrease Qd of toothpaste = Decrease D for toothbrush.

Question 15

name the 6 non-price determents of SUPPLY

Answer 15

1. changes in cost of production
2. technological advancements
3. changes in profitability of other products
4. changes in government policy
5. changes in availability of resources
6. changes in weather/climate

Question 16

define price determination

Answer 16

Market prices (market clearing price or equilibrium price) are determined by market forces.
Market forces: Factors that have the ability to affect the market (demand and supply).

Question 17

define market equilibrium

Answer 17

A state where there is balance between demand and supply. It is the point at which demand intersects with supply, resulting in market/equilibrium price and market/equilibrium quantity.

Question 18

define market disequilibrium

Answer 18

A state where there is imbalance between demand and supply. It usually occurs when supply exceeds the level of demand or demand exceeds available supply.

Question 19

what is Price Elasticity of Demand (PED)

Answer 19

PED is the responsiveness of the change in quantity demanded to a change in price.

Question 20

Write the elastic factors influencing PED

Answer 20

Luxury and non-essential products
Many substitutes
Large proportion of income
Long time period
No branding / Generic
Not addictive

Question 21

write the factors influencing PED

Answer 21

Nature of product / Degree of necessity
Number of substitutes
Proportion of income
Time period
Other factors

Question 22

write the inelastic factors influencing PED

Answer 22

Necessities and essential products
No / Few substitutes
Small proportion of income
Short time period
Strong brand loyalty
Addictive

Question 23

what is Price Elasticity of Supply (PES)

Answer 23

PES is the responsiveness of the change in quantity supplied to a change in price.

Question 24

write the elastic factors influencing PES

Answer 24

A lot of spare capacity and unused resources
Able and feasible to store
Low cost and short duration
Long time period
Mobile FOP

Question 25

write factors influencing PES

Answer 25

Degree of spare capacity
Ability to store inventory
Cost and duration of production
Time period
Factor mobility

Question 26

write inelastic factors influencing PES

Answer 26

No spare capacity and full employment of resources
Unable and unfeasible to store (usually perishable)
High cost and long duration
Short time period
Immobile FOP