©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
ECS2601 Unit 1 – 5 Exam Study Guide.
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.
1|Page
, ©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
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
• Necesseties
Linear Demand - answer✔Ep = 1 (y=mx + c)
The demand curve is in a straight line.
Infinitely Elastic - answer✔Ep = ∞
Principle where consumers will buy as much of a good as possible within a specific price.
Completely Inelastic - answer✔Ep = 0
Principle that consumers will buy a fixed quantity of goods no matter the price.
Income Elasticity of Demand - answer✔The percentage change in Qd due to a 1% increase in
income.
Income Elasticity of Demand Formula - answer✔EI = (I/Q) x (ΔQ/ΔI)
Cross Price Elasticity of Demand - answer✔The percentage change of Good A resulting form a
1% increase in the price of Good B.
2|Page
ALL RIGHTS RESERVED.
ECS2601 Unit 1 – 5 Exam Study Guide.
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.
1|Page
, ©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
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
• Necesseties
Linear Demand - answer✔Ep = 1 (y=mx + c)
The demand curve is in a straight line.
Infinitely Elastic - answer✔Ep = ∞
Principle where consumers will buy as much of a good as possible within a specific price.
Completely Inelastic - answer✔Ep = 0
Principle that consumers will buy a fixed quantity of goods no matter the price.
Income Elasticity of Demand - answer✔The percentage change in Qd due to a 1% increase in
income.
Income Elasticity of Demand Formula - answer✔EI = (I/Q) x (ΔQ/ΔI)
Cross Price Elasticity of Demand - answer✔The percentage change of Good A resulting form a
1% increase in the price of Good B.
2|Page
