TOPIC 2 Flashcards
Define microeconomics, state the two main groups
The behaviour of individual decision-making units in an economy. The two main groups of decision makers are firms and consumers.
What is microeconomics concerned with?
- The behaviour of these decision makers
- How they make choices
- How their interactions in the market determine prices
Define macroeconomics what does it examine?
Examines the economy as a whole and obtain a large picture of many individual units. Examines how a government can use various policies to improve economic welfare.
What is macroeconomics concerned with?
- General consumer behaviour of the economy
- General producer behaviour of the economy
- Total income/output of the economy
- Total employment
- General price level
What is a market?
A place where buyers and sellers meet to exchange goods and services with one another
What is resource allocation?
the way in which economies decide what goods and services to provide, how to produce them and who to produce them for
What are the basic economic questions?
what to produce, how to produce, and for whom to produce
What is the price mechanism?
When equilibrium price occurs, where demand and supply are equal. It helps answer the three basic economic questions. Producers will produce the good that consumers demand the most, it will be produced in a way that is cost-efficient, and will be produced for those who are willing and able to buy the product.
Define demand
Demands is an aspect of consumer behaviour. It is the amount of goods and services a consumer is willing and able to buy in a given time period
Define quantity demanded
The amount of goods and services consumers are willing to buy at a price
State the law of demand
As price falls, quantity demanded will increase, ceteris paribus
A change in prices causes a ____ the demand curve
Movement along
A change in all other factors excluding price, causes a _____ the demand curve
Shift
State the 6 non price determinants of demand
- Change in price of a related good
- Changes to consumer income
- Environmental factors
- Changes in taste and preference of consumers
- Changes in population
- Changes in future expectations
Define supply
The amount of a good or service produced at a given price over a period of time
State the law of supply
As price increases, quantity supplied increases, ceteris paribus
Why is the supply curve upward sloping?
When price increases, there is an incentive to the producers to produce more.
Define quantity supplied
The amount of a good or service provided/produced at a specific price over a period of time
State the 7 determinants of supply
- Change in price of the good itself
- Changes in technology
- Changes in environmental factors
- Changes in the FOPs
- Changes in price/profitability of other goods
- Government intervention
- Changes to the number of sellers in the market
Define market equilibirum
The price and quantity at which quantity demanded and quantity supplied is equal
Define market disequilibrium
Qs ≠ Qd.
There is either shortage or surplus in the market
Define excess supply
When quantity supplied of a good exceeds the quantity demanded
Define excess demand
When quantity demanded exceeds quantity supplied
An increase in supply will….
Lower the price and cause an extension in demand
A decrease in supply will…
Increase the price and cause contraction in demand
What does PED measure?
PED (price elasticity of demand) measures the responsiveness of quantity demanded when there is a change in price
When demand for a good is price elastic, PED….
When demand of a good is price elastic, PED > 1
When demand of a good is price inelastic, PED…
When demand of a good is price inelastic, PED < 1
When demand for a good is perfectly inelastic, PED…
When demand for a good is perfectly inelastic, PED = 0
When demand for a good is perfectly elastic, PED…
When demand of a good is perfectly elastic, PED = ♾️
When demand of a good is is unitary elastic, PED….
When demand of a good is is unitary elastic, PED = 1
State the equation for PED
PED = %ΔQd / %ΔP
6 determinants of PED
- Addiction
- Degree of necessity
- Passage of time
- Type of good
- Proportion of income spent on good
- Branding
Define total revenue
The total amount generated from sales
Define price elasticity of supply
A measurement of the responsiveness of quantity supplied to a change in price