Basics Flashcards
(25 cards)
What are the five forces
- Barriers to entry
- Power of suppliers
- Rivalry
- Substitutes and complements
- Power of buyers
what is marginal analysis
examining the benefits of the activity compared to the additional costs incurred by that same activity
What are demand shifters
- Income
- Prices of related goods
- advertising and consumer tastes
- population
- consumer expectation
what is total consumer value
sum of the maximum amount a customer is willing to pay at different quantities
what is consumer surplus
the extra value that consumers derive from a good but do not pay for
what is the market supply curve
the relationship between total quantity all producers are willing and able to produce at alternative prices, holding other factors affecting supply constant
What are demand shifters
- Income - normal/inferior
- Price of related goods - substitute/complement
- Advertising and consumer tastes - informative/ persuasive
- Population
- consumer expectations
what are supply shifters
- Input Prices
- Technology or government regulations
- No. of firms - entry or exit
- Substitutes in production
- taxes
- Producer expectations
what is the price ceiling
the maximum legal price that can be charged in a market - rent control
what is the price floor
the minimum legal price that can be charged in a market
Examples of Price ceiling
- Crude oil by the US in the 1970s
2. Cement in dubai in 2008
Example of price floor
minimum wage
what is own price elasticity
the responsiveness of a percentage change in the quantity demanded of good x to a percentage change in its price
when is it unitary elastic
when total revenue is maximised
what are the factors affecting own price elasticity
- Availability of consumption substitutes - the more sub the more elastic/ demand for commodities tend to be more inelastic
- Time/ Duration of purchase horizon - demand tends to be more inelastic in SR/ the more time consumers have to react to a price change the more elastic the demand for the good (time allows to seek out available substitutes)
- Expenditure share of consumers budget - essential goods are generally inelastic
how is elasticity and marginal revenue connected
Marginal revenue measures the additional revenue due to a change in output
What is optimal pricing policy
when MR = MC
What is cross price elasticity
measure of responsiveness of a percentage change in demand for good x due to a percent change in the price of good y
what is income elasticity
the responsiveness of a percent change in demand for good x due to a percent change in income
what are other examples of elasticities
- own price elasticity
2. cross-advertising elasticity
How do you obtain information on the demand function
- Published studies
- Hire a consultant
- Regression analysis using data on quantity, price, income and other important variables
What is r-square (coefficient of determination
fraction of the total variation in the dependent variable that is explained by the regression
What is adjusted r-square
a version of the r-square that penalise researchers for having few degrees of freedom
what is the F-statistic
the measure of the total variation explained by the regression relative to the total unexplained variation
- the greater the f-stat, the better the overall regression fit
- equivalently, the p-value is another measure of the f-statistic but the lower the value associated with better overall regression fit
