Revision Quiz with Answers Essay example

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PRELIMINARY ECONOMICS REVISION QUIZ
DEMAND
1. Define the concept Ceteris Peribus
Assuming nothing else changes. Used to isolate the relationship between 2 economic variables
2. Define the Law of Demand
The relationship between the price and quantity demanded. The law states that the quanitity demanded falls as the price rises
3. Describe the movements along the demand curve that result from an increase and decrease in price
As the price of a product increases the quantity demanded decreases. This is referred to as a contraction in demand. As the price of a product decreases, the level of demand increases. This is referred to as an expansion in demand.
4. Draw what might occur if there was an increase in demand and identify 3 factors that cause this increase
Prices of other goods (rise in price of substitute, fall in price of complementary)
Expected future prices
Consumer tastes and preferences
Consumer incomes
Size and age distribution of population

5. Draw what might occur if there was a decrease in demand and identify 3 factors that cause this decrease
Price of other goods (fall in price of substitute, rise in price of complimentary)
Expected future prices
Consumer tastes and preferences
Consumer incomes
Size and Age distribution of population

6. Explain what is meant by Elasticity of Demand and why it’s so important for Businesses and Governments
Measures the responsiveness of the quantity demanded to a change in the price It calculated by the percentage change in the quantity demanded to the percentage change in price.
Elastic = strong response to change
Unit Elastic = proportional response to change
Inelastic = weak response
Business and governments need to know to be able to decide their optimal pricing strategy and for allocation of taxes (indirect taxes)

7. Use a diagram to illustrate Perfectly Elastic Demand and Perfectly Inelastic Demand

SUPPLY
1. Identify 3 factors that may affect market supply
The price of the good/service itself
Price of other g/s’s
Technology
Changes in costs of factors of production
Quantity of goods available
Climatic and seasonal influence
2. Describe the movements along the supply curve that result from an increase and decrease in price. Why does this occur?
Law of supply shows the relationship between the price and the quantity supplied. The higher the price the greater the quantity supplied. This is because that product then becomes more profitable to produce for the business.
3. Draw what might occur if there was an increase in supply and identify 3 factors that cause this increase
Fall in the price of other goods
Improvements in technology
Fall in the cost of factors of production
Increase in the quantity of resources available
Climatic and seasonal conditions

4. Draw what might occur if there was a decrease in supply and identify 3 factors that cause this decrease
Rise in the price of other goods
Technology no longer available
Rise in the cost of factors of production
Decrease in the quantity of resources available
Regulations restricting the supply of a good/service
Climatic conditions

5. Identify the three factors that affect the elasticity of supply
Time lags
The ability to hold stock
Excess capacity
MARKET EQUILIBRIUM
1. Outline the concept of price mechanism
The process by which the forces of supply and demand interact to determine the price of a product and the quantity supplied
2. When does market equilibrium occur? Illustrate your answer
Market equilibrium occurs
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