1.2 How markets work Flashcards
(27 cards)
What is demand?
The ability and willingness to buy a particular good at a given price and time
What causes a movement along a demand curve?
A change in price
What causes a shift in demand?
PACIFIC
Population
Advertising
Substitutes
Interest rates
Fashion/trends
Income tax
Complements
What is total utility?
The satisfaction gained by a consumer as a result of their consumption
What does the Law of Diminishing Marginal Utility state?
As more of a good is consumed the satisfaction derived will decrease
PED - Prices elasticity of demand
% change in quantity demanded / % change in price
Values of PED
Between 0 - 1 is inelastic
Between 1 and infinity is elastic
Factors influencing PED
Availability of substitutes
Time
Necessity
Addictive
Income elasticity of demand - YED
% change in quantity demanded / % change in income
Valued of YED
Less than 0 is an inferior good
More than 0 is a normal good
More than 1 is a luxury good
XED - Cross elasticity of demand
% change in quantity demanded of good A / % change in price of good B
Values of XED
Less than 0 is a substitute
More than 0 is a complementary good
What is supply?
The ability and willingness to provide a good or service at a particular price and time
What causes a movement along a supply curve?
A change in price of the good
What causes a shift of the supply curve?
PINTSWC
Productivity
Indirect Tax
Numbers of firms in the market
Tech
Subsidies
Weather
Cost of production
PES - Price elasticity of supply
% change in quantity supplied / % change in price
Values of PES
Less than 1 is inelastic
More than 1 is elastic
What is price equilibrium?
Where supply is equal to demand
Price Mechanism
SIRA
Signalling - prices adjust to show where resource are required
Incentive - When the price of the product rises
Ration - Price serve to ration scarce resources
Allocating - Allocating scarce resources
What is a consumer surplus?
The difference between the price the consumer is willing to pay and the price they actually pay
What is a producer surplus?
The difference between the price the supplier is willing to produce their product and the price they actually produce at
What is an indirect tax?
A tax on expenditure
What are the 2 types of indirect tax?
Ad Valorem - where the tax payable increases in proportion to the value of the good
Specific Tax - where an amount is added to the price
What is the incidence of tax?
The burden on the taxpayer
