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Year 12 > Demand and supply in product markets > Flashcards

Demand and supply in product markets Flashcards

1
Q

What is a complement

A

Complementary goods are products which are used together.

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2
Q

What is consumer surplus

A

The difference between how much buyers are willing to pay for a good and what they actually pay.

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3
Q

What is cross elasticity

A

A measure of the responsiveness of quantity demanded of one good to a change in price of another good

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4
Q

What is a inferior good

A

When demand for a product falls as real income increases

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5
Q

What is a normal good

A

A good where demand increases when income increases

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6
Q

What is price elasticity of demand

A

A measure of the responsiveness of quantity demand to a change in price

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7
Q

What is price elasticity of supply

A

A measure of the responsiveness of quantity supplied to a change in price

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8
Q

What is producer surplus

A

The difference between the market price which firms receive and the price at which they are prepared to supply

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9
Q

What is a substitute

A

Substitutes are goods that perform the same function/satisfy the same need.

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10
Q

What is a luxury good

A

When demand increases more than income increases

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11
Q

What is a necessity

A

something needed for basic human existence, e.g. food, water, housing, electricity.

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12
Q

What is a product market

A

A product market is the marketplace where final goods or services are sold to businesses and the public sector.

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13
Q

Who are the economic agents

A

Consumer, Producer & Government

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14
Q

Objectives of consumer

A

Consumers aim to generate the greatest utility possible from an economic decision.

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15
Q

Objectives of producer

A

Producers aim to generate the highest profits, sales and revenue.

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16
Q

Objectives of government

A

Economic welfare

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17
Q

What is marginal utility

A

is the change in total utility or satisfaction derived from consuming an extra good or service.

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18
Q

How does derived marginal utility affect demand curve

A

If there are diminishing marginal returns, then peoples willingness to pay will decline, therefore fall in demand curve

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19
Q

Factors influencing demand

A

Price

Prices of substitutes and complements

Incomes

Fashion and trend

Structure of population

Advertising

Expectation of consumer

20
Q

Factors influencing supply

A

Price consumers willing to pay

Technology

Seller expectations

Natural events

Cost of production

21
Q

Why does the demand curve from top left to bottom right

A

Real Balance effect - As price level rises, the real value of peoples income falls so consumers are less able to buy the items they want or need.

Interest rate effect - If the price levels rises, this causes inflation and an increase in the demand for money and so a possible rise in interest rates with a deflationary effect on the economy.

22
Q

When is there movement along the demand line

A

There is a movement along the demand curve when the quantity wanted of a single commodity changes due to a change in price, while all other factors remain constant

23
Q

When does the demand curve shift

A

at each possible price due to a change in one or more other factors.

24
Q

Where is consumer surplus on a diagram

A

Above producer surplus

25
Q

Where is producer surplus on a diagram

A

Below consumer surplus

26
Q

What is the equation for price elasticity of demand

A

PED = % change in Q.D. / % change in Price.

27
Q

What is the equation for Income elasticity

A

YED = % change in Q.D / % change in Income.

28
Q

How do you find the percentage change

A

Find out difference between numbers then you divide the original value by the change and times by 100

29
Q

What is the equation for cross elasticity

A

XED = % change in Q.D good A / % change in price of good B

30
Q

What is the equation for price elasticity of supply

A

PES = % change in Q.S. / % change in Price.

31
Q

What happens when a good is elastic

A

when price increases/decreases, demand will fall/rise by more than the price increased/decreased

32
Q

What happens when a good is inelastic

A

when the price goes down or up consumers’ buying habits also remain unchanged

33
Q

How does the government use elasticity

A

When government taxes goods with inelastic demand, the change in quantity demanded will be smaller than if government taxed an elastic good (more efficient).

34
Q

How does elasticity affect subsidys

A

If demand is elastic, then a subsidy causes a bigger percentage rise in demand. There is only a small fall in price, if inelastic then a subsidy causes a substantial fall in price, however there is only a small increase in demand.

35
Q

What are substitute goods in cross elasticity of demand

A

Always positive because the demand for one good increase when the price for the substitute good increases.

36
Q

What is weak substitutes

A

the two products have a positive but low cross elasticity of demand

37
Q

What are complementary goods in cross elasticity of demand

A

Cross elasticity of demand for complementary goods is negative. As the price for one item increases, an item closely associated with that item and necessary for its consumption decreases because the demand for the main good has also dropped.

38
Q

What does an inelastic supply line look like on a graph

A

The supply line would be steep

39
Q

What does a perfectly inelastic supply line look like on a graph

A

A vertical line

40
Q

What does an elastic supply line look like on a graph

A

The supply line would be more flat and the start will be raised higher

41
Q

What does a perfectly elastic supply line look like on a graph

A

A horizontal line

42
Q

What is marginal utility

A

The decrease or increase in satisfaction a consumer has from the consumption of each extra unit of a good or service.

43
Q

How to find the real value when there is an inflation increase

A

Real value = (nominal value/price index) x 100

44
Q

How do you find the mean

A

You find the mean by adding all the values together then dividing it by the amount of values.

45
Q

How do you find the median

A

You find the median by creating a list of the values in order then seeing what the middle value is.

46
Q

How do you calculate a change in the price index

A

Find the difference between the change then divide it by the original number, then you add or subtract the number by the base value

Year 12 (41 decks)

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