Unit 2

Question 1

Price mechanism

Answer 1

is essential to resource allocation. It sends signals from consumers to producers to adjust the quantity supplied in the market.

Question 2

Consumers

Answer 2

Individuals or households who buy goods and services for their use or others

Question 3

Market

Answer 3

buyers and sellers get together for trade or exchange

Question 4

Demand

Answer 4

the quantity of goods and services that consumers can buy at a given price level.

Question 5

Supply

Answer 5

the quantity of goods and services that producers can sell at a given price level.

Question 6

Law of demand

Answer 6

When the price decreases, the quantity supplied increases (vice versa)

Question 7

Notional demand

Answer 7

consumers may want to buy a product, but it is not always backed up by the ability to pay. Example: luxury bags or vehicles - students

Question 8

Effective demand

Answer 8

demand backed up by the ability to pay. Examples: getting groceries from the supermarket - parents

Question 9

Normal good

Answer 9

demand increases when income increases

Question 10

Inferior goods

Answer 10

demand increases when income decreases

Question 11

Substitutes

Answer 11

goods or services that can replace one another

Question 12

Complements

Answer 12

goods or services that can be consumed together

Question 13

Product

Answer 13

any item that is being traded i.e. goods and services

Question 14

Suppliers

Answer 14

sellers of the product

Question 15

Elastic

Answer 15

the relative change in quantity demanded is less than the change in price

Question 16

Inelastic

Answer 16

the relative change in quantity demanded is less than the change in price

Question 17

Price elasticity demand (PED) = ?

Answer 17

Measure the responsiveness of the quantity demanded for a product following a change in price
% change in Qd / % change in P

Question 18

Income elasticity demand (YED)

Answer 18

Measures the responsiveness of the quantity demanded for a product following a change in income

Question 19

Cross elasticity of demand (PED)

Answer 19

Measures the responsiveness of quantity demanded for one good following a change in price of another product

Question 20

Price elasticity of supply (PES)

Answer 20

Measuring the responsiveness of the quantity supplied of a product following a change in price

Question 21

Equilibrium

Answer 21

happens when quantity demanded equals to quantity supplied (where demand and supply meets)/ There is no tendency for price change