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Chapter 2: Competitive Markets: Demand and Supply

1: Explain how the price mechanism reallocates resources when there is an increase in demand for a good or service.

2: With reference to the concept of excess demand, explain how a decrease in supply of a good would lead to a new market equilibrium.

3: Explain how an increase in the costs of factors of production would affect the market price and output of a good.

4: Using a production possibilities curve (PPC) diagram, explain why choices have to be made in all economics.

5: Explain how changes in price work to reallocate resources in a market.

6: Using diagram (s), explain the signaling and incentive functions of price.

7: Using diagrams, explain how a change in one of the determinants of demand might increase the price of rice and how a change in one of the determinants of supply might decrease the price of rice.

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