Unit 2

Question 1

Product Market

Answer 1

is the market for the outputs of production (goods and services)

Question 2

Factor Market

Answer 2

Is a market for any input into the production process (factors of production - land, labour, capital and enterprise)

Question 3

Products market

Answer 3

consumers: consumers within the constrain of their income choose what to buy from product market based on the relative price of each good or service.

Question 4

Demand

Answer 4

Individual demand: is the quantity of the good or service that a consumer is willing and able to purchase at a given price.

Market demand: is essentially the sum of all individual demand - the demand by all consumers for a particular good or service

Influenced by: price, income, tastes, expected future prices, prices of other goods and services, population

Question 5

The law of Demand

Answer 5

The law of demand states there is an inverse relation between price and quantity

Question 6

Ceteris Paribus

Answer 6

with other conditions remaining the same; other things being equal

Question 7

Demand For Labour

Answer 7

PRODUCT FACTOR MARKET

• In most markets, Demand comes from consumers who belong to household
• supply comes from producers, who belong to firms

LABOUR MARKETS

• “backwards” compared to product factor market
• in labour markets, Demand comes from the employer of labour, which area firms
• supply comes from the owners of labour which are households in exchange for wages

*demand for labour is “derived demand”

Question 8

How to Analyse a Graph

Answer 8

TEEA

• trend/average
• evidence (specific statistics)
• explanation (low modality)
• anomaly (if relevant)

Question 9

Factors Influencing Demand for Labour

Answer 9

Due to “derived demand”, the amount a firm produces (its output) directly influences the amount of labour the firm demands.

INFLUENCED BY:
Aggregate Demand
- GDP
- Higher GDP = more output = more labour

Industry Conditions
- changing tastes of consumers

Selling Techniques
- Ultimately, the effectiveness of the individuals firm’s
selling techniques determines their output

*Firms decide how to produce their product by combining F.O.D. If capital is cheap relative to labour, firms will choose to substitute away from labour

Question 10

Productivity of Labour

Answer 10

total output
—————– = productivity of labour
Labour Input

Question 11

The Economic Problem

Answer 11

an economy’s finite resources are insufficient to satisfy all human wants and needs.