WEEK 2

Question 1

What is comparative statics

Answer 1

Comparison of 2 economic outcomes before and after a shock

Question 2

What does comparative mean in comparative statics

Answer 2

Compares the 2 equilibrium’s before and after

Question 3

What does static mean in comparative statics

Answer 3

Doesn’t study the motion towards equilibrium or the change itself

Question 4

What is changes in demand

Answer 4

A change in quantity demand is a movement along a curve

Question 5

What does a change in demand refer to

Answer 5

Refers to a new curve

Question 6

Is the changes in demand the same as changes in supply

Answer 6

Yes

Question 7

What are the factors that shift demand

Answer 7

Substitute goods
Complementary goods
Changes in income
Change in preferences
Change in population
Change in expectation of future prices

Question 8

How does substitute goods shift demand

Answer 8

If price of a sub increases demand increases

Question 9

How does complementary goods shift demand

Answer 9

If price of complementary decreases demand increases

Question 10

How does change in income shift demand

Answer 10

For a normal good an increase in demand
For an inferior good leads to decrease in demand

Question 11

How does change in preference shift demand

Answer 11

When something is found to be bad (fags) decrease in demand

Question 12

How does population shift demand

Answer 12

More people more demand

Question 13

When predicting the market an increase in demand

Answer 13

Increased price and quantity

Question 14

When predicting the market an decrease in demand

Answer 14

Decreases in equilibrium price and quantity

Question 15

What are the factors that shift supply

Answer 15

Any changes that affect the cost of production

Question 16

Example of factors shifting supply

Answer 16

An increase in labour prices - Decreased supply

Question 17

When predicting the market an increase in supply

Answer 17

Will lead to a decrease in equilibrium prices and increase in quantity

Question 18

When predicting the market a decrease in supply

Answer 18

lead to an increase in equilibrium price and decrease in quantity

Question 19

What is price elasticity

Answer 19

A measure of how much quantity demanded is effected by changes in prices

Question 20

Whats the formula for elasticity

Answer 20

%change in quantity demanded / %change in price - Always positive

Question 21

How to find %change in price

Answer 21

new price - old price / 100

Question 22

How to find %change in demand

Answer 22

new demand - new price / 100

Question 23

If E > 1

Answer 23

Demand is elastic - customers responsive over price changes

Question 24

If E < 1

Answer 24

Demand is inelastic - Consumers unresponsive over price changes

Question 25

If E = 1

Answer 25

Demand is unit elastic - quantity changes the same as prices

Question 26

When is demand perfectly elastic and inelastic

Answer 26

elasticity = infinity inelastic = 0

Question 27

What does perfectly elastic mean

Answer 27

Even slightest increase in price leads to switches to subs

Question 28

What does perfectly inelastic mean

Answer 28

Consumers have no substitutes

Question 29

In graphs how is perfectly inelastic and elastic shown

Answer 29

elastic is a straight line across inelastic is straight line up

Question 30

What is the largest determinant of E

Answer 30

Availability of subs

Question 31

what is arc elasticity

Answer 31

The price elasticity between 2 points on the demand curve

Question 32

What is price point elasticity

Answer 32

The price elasticity at a certain point

Question 33

What is the price point elasticity formula at one point

Answer 33

1/gradient (always positive) x p/q

Question 34

if p=20-4q and a=3,8 whats the elasticity

Answer 34

1/4 x 8/3 = 2/3

Question 35

What does the price point elasticity number mean - with E=2/3

Answer 35

If there is an increase of 1% in price it would lead to a 2/3% decrease in demand

Question 36

When price and quantity is the same the curve with what will have the higher demand

Answer 36

Smaller gradient

Question 37

When gradient is the same

Answer 37

Elasticity increases as we move along a demand curve as p/q declines

Question 38

How to find total revenue

Answer 38

P x Q

Question 39

If demand is elastic and a small price increases then

Answer 39

It will lead to a big drop in quantity - TR decrease

Question 40

If demand is inelastic a large price increase will

Answer 40

Decrease demand a little - TR increase

Question 41

Determinants of E

Answer 41

Availability of subs time to adjust Share of budget Addiction

Question 42

Why is time to adjust a determinant of E

Answer 42

short term consumers find it hard to change behaviour - long term doesnt

Question 43

Why is share of budget a determinant of E

Answer 43

What % of your budget is spent on a good

Question 44

Why is adiction a determinant of E

Answer 44

addictive goods tend to be inelastic