1.2 How Markets Work Flashcards
(26 cards)
Marginal Utility
Refers to the additional satisfaction or utility gained from consuming one more unit of a good or service.
Demand
The quantity of goods and services that consumers are willing and able to buy at a given price in each time period.
Derived Demand
The demand for a factor of production that is used to produce another good or service.
Joint Demand
When demand for one good directly and positively influences demand for another good.
PED
The responsiveness of the quantity demanded of a good or service to changes in its price.
What are the key factors affecting PED?
S - Substitutes (num of)
P - Proportion of income
L - Luxury vs Necessity
A - Addictiveness
T - Time
XED
The responsiveness if the quantity demanded of good A to a change in the price of good B.
Do substitutes have a positive or negative CPED?
Positive (the higher the number, the closer the substitute)
Substitute Good?
Multiple goods which have the same purpose
Supply
The quantity of a good or service that producers are willing and able to supply at a given price in each time period.
What are the causes of shifts in market supply curve?
P - Productivity
I - Indirect Taxes
N - Number of substitutes
T - Technology
S - Subsidies
W - Weather
C - Costs
Joint Supply
Where an increase or decrease in the supply of one good leads to an increase or decrease in supply of a by-product
What factors cause a shift in market demand?
P - Popularity
A - Advertising
C - Confidence
I - Income tax
F - Fashion
I - Income
C - Complement good prices
S - Substitute good prices
What are the main functions of the price mechanism?
- Allocate
- Rationing
- signalling
- Incentives
Producer Surplus
The difference between the price producers are willing and able to supply a product for and the price they receive in the market.
Indirect Taxes
A tax imposed by the government that increases the supply costs of producers.
Excise Duties
Indirect taxes on alcoholic drinks, tobacco products and road fuels.
Ad Valorem Tax
A type of indirect tax where the amount varies depending on value of the good
Regressive Tax
A tax which has a higher bruden on lower incomes.
Normal Good
A rise in income leads to a rise in demand.
Inferior Good
A rise in income leads to a fall in demand.
What are the coefficients of PED?
> 1 = Price elastic
<1 = Price inelastic
0 = Perfectly price inelastic
Infinite = perfectly price elastic
1 = unitary price elastic
What are the coefficients of CPED?
+ve = substitute
-ve = complement
> 1 = price elastic
<1 = price inelastic
0 = perfectly inelastic
What factors influence PES?
P = Productivity
S = Sustainability
S = Stocks
S = Spare capacity
T = Time
