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QLDEconomicsQuick questions
Unit 1: Markets and models
Quick questions on Demand, supply, equilibrium and elasticity (QCE Economics Unit 1)
15short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is the law of demand?Show answer
The law of demand states that, holding other factors constant, the quantity demanded of a good rises when the price falls (and vice versa). The demand curve slopes downward.
What is non-price determinants of demand?Show answer
Demand shifts (rather than moves along) when one of these factors changes:
What is the law of supply?Show answer
The law of supply states that, holding other factors constant, the quantity supplied rises when the price rises. The supply curve slopes upward.
What is equilibrium?Show answer
Equilibrium is the price and quantity where demand equals supply. Diagrammatically, equilibrium is the intersection of the demand and supply curves.
What is movements along vs shifts?Show answer
Movement along a curve happens when the price of the good itself changes. The other factors are held constant.
What is worked example?Show answer
Initial position. Iron ore at $80 per tonne; Australia exports around 900 million tonnes per year.
What is price elasticity of demand?Show answer
Price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price.
What is price elasticity of supply?Show answer
Price elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price.
What is applications of elasticity?Show answer
Tax incidence. When demand is inelastic and supply is elastic, the consumer bears most of the tax burden (e.g. cigarettes). When demand is elastic and supply is inelastic, the producer bears most (e.g. fresh produce).
What is initial position?Show answer
Iron ore at $80 per tonne; Australia exports around 900 million tonnes per year.
What is demand shift right?Show answer
Chinese stimulus spending raises construction activity, increasing demand for steel and therefore iron ore. The demand curve shifts right.
What is new equilibrium?Show answer
Price rises to $130; quantity rises slightly (supply is relatively inelastic in the short run because mine capacity is fixed).
What is supply shift right?Show answer
Discovery of new deposits and capacity expansion at major Pilbara mines (Rio Tinto, BHP, Fortescue) shifts the supply curve right. Price falls; quantity rises.
What is tax incidence?Show answer
When demand is inelastic and supply is elastic, the consumer bears most of the tax burden (e.g. cigarettes). When demand is elastic and supply is inelastic, the producer bears most (e.g.
What is pricing strategy?Show answer
Firms with inelastic demand can raise prices to increase total revenue. Firms with elastic demand should be cautious about raising prices.