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Economics A-level > 4.1.3 Price Determination In Acompetitive Market > Flashcards

4.1.3 Price Determination In Acompetitive Market Flashcards

1
Q

What is demand?

A

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

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2
Q

Which way is expansion of demand?

A

Q1 to Q2

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3
Q

Which way is contraction of demand?

A

Q1 to Q3

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4
Q

What does demand increasing look like on a graph?

A

Demand shifting outwards from D1 to D3

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5
Q

What factors shift the demand curve?

A

Population
Income (disposable income & wealth)
Related good (substitutes & compliments)
Advertising
Tastes & fashion
Expectations (future price changes)
Seasons

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6
Q

What is price elasticity of demand?

A

The responsiveness of demand to a change in price

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7
Q

PED formula

A
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8
Q

What numerical value is PED if a good is elastic?
What does the graph look like?

A

PED > 1

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9
Q

What numerical value is PED if a good is inelastic?
What does the graph look like?

A

PED<1

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10
Q

What does unitary elastic mean?

A

Change in demand = change in price

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11
Q

What does elastic mean?

A

Responsive to a change

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12
Q

What numerical value is PED if a good is unitary elastic?
What does the graph look like?

A

PED = 1

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13
Q

What numerical value is PED if a good is PERFECTLY inelastic?
What does the graph look like?

A

PED = 0

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14
Q

What numerical value is PED if a good is PERFECTLY elastic?
What does the graph look like?

A

PED = infinity

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15
Q

If PED = -1.33 is the good elastic or Inelastic?

A

As the value is greater than 1
Regardless of whether it is positive or negative
Bread is relatively price inelastic

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16
Q

What factors influence e PED?

A
  • Necccessity
  • Substitutes
  • Addictive or habitual consumption
  • Proportion of income spent on the good
  • Durability of the good
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17
Q

What curve do taxes shift?

A

The supply curve

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18
Q

Who would have a larger burden from tax if the product was inelastic?

A

Consumer

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19
Q

Who would have a larger burden from tax if the product was elastic?

A

Producer

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20
Q

diagram of a subsidy

A

Supply shifts outwards
Price reduces for both consumer and producer

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21
Q

What’s the formula for total revenue?

A

TR = P x Q

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22
Q

What is YED (income elasticity of demand)?

A

The responsiveness of demand to a change in income

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23
Q

What is the formula for YED?

A

Y is income

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24
Q

What are inferior goods?

A

Goods which fall in demand as income increases
(Eg. Consumers switch to branded goods when income rises)

25
Q

What is the YED for inferior goods?

A

YED <0

26
Q

What are normal goods?

A

Goods where demand increases as income increases

27
Q

What is the YED for normal goods?

A

YED>0

28
Q

What is a luxury good?

A

A good where an increase in income causes an even bigger increase in demand

29
Q

What’s is the YED for for luxury goods?

A

YED>1

30
Q

What is cross elasticity of demand?

A

The responsiveness of demand of one good to a change in price of another good

31
Q

What is the formula for XED?

A
32
Q

What is the relationship between complimentary goods and XED?

A

NEGATIVE XED
If one good becomes more expensive, the quantity demanded for both goods will fall

33
Q

What does a graph for strong complements XED look like?

A

A small fall in the price of good X leads to a large quantity demanded of Y

34
Q

What does a graph for weak complements XED look like?

A

A large fall in the price of good X leads to only a small increase in quantity demanded of Y

35
Q

What is the relationship between substitute goods and XED?

A

POSITIVE XED
If the price of one good increases consumers might switch to another good

36
Q

What does a graph for strong substitutes XED look like?

A

A small increase in the price of good X leads to a large increase in QD of Y

37
Q

What does a graph for weak substitutes XED look like?

A

A large increase in the price of good X leads to a smaller increase in the QD of Y

38
Q

What is the XED for unrelated goods?

A

0

39
Q

What is supply?

A

The quantity of a good ore service that a producer is able and willing to supply at a given price during a given period of time

40
Q

Why do supply curves slope upwards?

A

If price increases, it’s more profitable for firms to supply the good
High prices encourage new firms to enter the market because it seems more profitable so supply increases

41
Q

Why do changes in price cause expansion and contraction of the supply curve?

A

Profit motive : firms are driven by the desire to make large profits

42
Q

How do you show an increase in supply on a graph?

A

Outward shift from S1 to S2

43
Q

What factors shift the supply curve?

A

PINT SWC
Productivity
Indirect taxes
Number of firms
Technology
Subsidies
Weather
Costs of production

44
Q

What is PES?

A

The responsiveness of supply to a change in price

45
Q

PES equation

A
46
Q

What is the PES for elastic goods?

A

PES > 1

47
Q

What is the PES for inelastic goods?

A

PES<1

48
Q

Graph for elastic PES

A
49
Q

Graph for in elastic PES

A
50
Q

What does the graph fro perfectly inelastic PES look like?

A

PES = 0

51
Q

What does the graph for a perfectly elastic PES look like?

A
52
Q

What’s factors influence PES?

A

Time scale
Spare capacity
Level of stocks
Howsubstiture factors are
Barriers to enter the market

53
Q

What is equilibrium?

A

When supply meets demand

54
Q

What is disequilibrium?

A

When demand is grater than supply

55
Q

What is excess supply?

A

When price is above the equilibrium price

56
Q

What does derived demand mean?

A

When the demand for one good is linked to the demand for another good

57
Q

What does composite demand mean?

A

The good demanded has more than one use

58
Q

What is joint demand?

A

When goods are bought together

59
Q

What is joint supply?

A

When increasing the supply of one good causes an increase or decreases in the supply of another good
Eg. lamb and wool

Economics A-level (15 decks)

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