Flashcards in 3 Price Determination In A Competitive Market Deck (27):
What is demand?
The quantity of a good or service that consumers are able and willing to buy at a given price during a given period of time
What's the factors shift of the demand curve?
Population, income, related goods such as substitutes or compliments, advertising, tastes, expectations and seasons
What does the downward sloping demand curve show?
The inverse relationship between price and quantity
What is price elasticity of demand?
The responsiveness of a change in demand to a change in price
Is a price elastic good responsive to change in price?
Yes, the change in price leads to an even bigger change in demand
What is a unitary elastic good?
When change in demand is equal to the change in price
What is a perfectly inelastic good?
A good start has a demand which does not change when the price changes
What is a perfectly elastic good?
demand falls to 0 when price changes
What factors influence the price elasticity of demand?
Necessity, substitutes, addictiveness or habitual consumption, proportion of income spent on the good, durability of the good, and peak or off-peak demand
What is a subsidy?
Payments from the government to firms to encourage the production of a good and to lower their average costs
What is total revenue?
It is equal to average price times quantity sold
What is income elasticity of demand?
The responsiveness of a change in demand to a change in income
What is an inferior good?
Good we see a fall in demand as income increases
What is cross elasticity of demand?
The responsiveness of a change in demand of one good to a change in price of another good
What is supply?
The quantity of a good or service that a producer is willing and able to supply at a given price during a given period of time
Why are supply curve upwards sloping?
Of price increase, it is more profitable for firms to supply the good, so supply increases
High prices encourage new firms to enter the market because it seems profitable so supply increase
With larger outputa, firm's costs increas, so they need to charge a higher price to cover the costs
What factors shift the supply curve?
Productivity, indirect tax taxes, number of firms, technology, subsidies, weather, cost of production
What is the price elasticity of supply?
The responsiveness of a change in supply to change in price
What is elastic supply?
When firms can increase supply quickly at little cost
What is in elastic supply?
When an increase in supply will be very expensive for firms and take a long time
What is perfectly elastic supply?
When any quantity demanded can be met without change in price
What factors influence price elasticity of supply?
Timescale, spare capacity, level of stocks, how substitutable factors are and barriers of entry to the market
What types of demand are there?
Derived demand, composite demand, and joint demand
What is derived demand?
When the demand for one good is linked to the demand for a related good
What Is composite demand?
When the good demanded has more than one use an example could be milk
What Is joint demand?
When goods are brought together such as a digital camera and a memory card