ECS2601 Unit 1 – 5 Questions &
Answers
Microeconomics - ANSWER-A branch of economics that deals with the behaviour of individual economic
units.
Economic Model - ANSWER-The interacting relationship between two or more economic variables.
3 Fundamental Questions of Economics - ANSWER-1. What to Produce
2. How Much to Produce
3. For Whom to Produce
Emergence of Price - ANSWER-The interaction between consumers and producers interacting on the
market.
The Market is in Equilibrium - ANSWER-The market is in Equilibrium with no Surplus or shortages. Thus
there are no pressures for the prices to change.
Market Mechanism - ANSWER-The tendency in a free market for Price to change until the market clears.
Equilibrium Price - ANSWER-The price at which the market is in equilibrium. Thus the quantity supplied
equals the quantity demanded at a specific price. Qs = Qd
Disequilibrium - ANSWER-Any point on the graph that is not at the equilibrium point.
Surplus - ANSWER-Qs > Qd
Shortage - ANSWER-Qs < Qd
, Demand Curve - ANSWER-The quantity of goods "consumers" are willing to buy at a specific price.
(Maximization of Utility)
Influenced by budget constraints.
Supply Curve - ANSWER-The quantity of goods "producers" are willing to sell at a specific price.
(Maximization of Profit)
This is influenced by consumer demand the the costs of production.
Substitutes - ANSWER-Two goods where an increase in price causes an increase in demand for the
second product.
Compliment - ANSWER-two goods where a price increases for one causes the demand to decrease for
the second as they are both used together.
Elasticity Definition - ANSWER-The percentage change in one variable resulting from a 1% increase in
another.
Purpose of Elasticity - ANSWER-It measures the sensitivity of one variable to another.
Price Elasticity of Demand - Ep - ANSWER-The percentage change of in quantity demand of a good
resulting from a 1% increase in its price.
Purpose of Price Elasticity of Demand - ANSWER-Measures the sensitivity of the quantity demanded
relative to its price.
Price Elastic - ANSWER-Ep > 1 → The percentage decline in Qd is greater that the percentage increase in
price.
• The curve is flatter
• Has many Subsititutes
Price Inelastic - ANSWER-Ep < 1 → The percentage change in price barely affects the Qd of the good.
• Steeper Curve
Answers
Microeconomics - ANSWER-A branch of economics that deals with the behaviour of individual economic
units.
Economic Model - ANSWER-The interacting relationship between two or more economic variables.
3 Fundamental Questions of Economics - ANSWER-1. What to Produce
2. How Much to Produce
3. For Whom to Produce
Emergence of Price - ANSWER-The interaction between consumers and producers interacting on the
market.
The Market is in Equilibrium - ANSWER-The market is in Equilibrium with no Surplus or shortages. Thus
there are no pressures for the prices to change.
Market Mechanism - ANSWER-The tendency in a free market for Price to change until the market clears.
Equilibrium Price - ANSWER-The price at which the market is in equilibrium. Thus the quantity supplied
equals the quantity demanded at a specific price. Qs = Qd
Disequilibrium - ANSWER-Any point on the graph that is not at the equilibrium point.
Surplus - ANSWER-Qs > Qd
Shortage - ANSWER-Qs < Qd
, Demand Curve - ANSWER-The quantity of goods "consumers" are willing to buy at a specific price.
(Maximization of Utility)
Influenced by budget constraints.
Supply Curve - ANSWER-The quantity of goods "producers" are willing to sell at a specific price.
(Maximization of Profit)
This is influenced by consumer demand the the costs of production.
Substitutes - ANSWER-Two goods where an increase in price causes an increase in demand for the
second product.
Compliment - ANSWER-two goods where a price increases for one causes the demand to decrease for
the second as they are both used together.
Elasticity Definition - ANSWER-The percentage change in one variable resulting from a 1% increase in
another.
Purpose of Elasticity - ANSWER-It measures the sensitivity of one variable to another.
Price Elasticity of Demand - Ep - ANSWER-The percentage change of in quantity demand of a good
resulting from a 1% increase in its price.
Purpose of Price Elasticity of Demand - ANSWER-Measures the sensitivity of the quantity demanded
relative to its price.
Price Elastic - ANSWER-Ep > 1 → The percentage decline in Qd is greater that the percentage increase in
price.
• The curve is flatter
• Has many Subsititutes
Price Inelastic - ANSWER-Ep < 1 → The percentage change in price barely affects the Qd of the good.
• Steeper Curve
