Chap 3 Flashcards
What is PED
Price eleasticity of demand
- how price sensitive demand for a product is
Difference between Point Ped and Arc ped
point ped = ped at that point
arc ped = av ped between two points
What is inelastic demand?
<> UP UP
PED <1
Change in P > change in Q
Increase price, Increase overall revenue
essential purchases
What is elastic
> < UP DOWN
PED > 1
Change in P < Change in Q
Increase price, decrease overall revenue
Luxury
Factors that effect PED
N. of close substitutes - more elastic - if P increases people switch
Switching - high cost = inelastic
Luxury
Percetage of income - high percent - more elastic
Time - more time to respond - more elastic - can switch
Habit - more inelastic
peak - inelasitic - off peak - elastic
Definition - broad inelastic - specific elastic
SSLPTHPD
Secret service love putting the holiday party down
In a straight line curve - what is the PED left to right
y intercepy
PED = infinity - Perfectly elastic
Relatively elastic PED >1
Unitary PED = 1
Relatively inelastice PED < 1
PED = 0 perfectly inelastic - x intercept
What is PES
Price elasticity of Supply
-how quantity of supply is changed in respect to price of that good
Factors that effect PES
SETS
Spare capacity - elastic
Ease of factor substitution -
Time period - longer time - more elastic
Stocks - high stocks of materials etc - elastic
What is an externality
Any impact on any 3rd part not involved in transaction
demerit - bad
merit good
gov tax/regulate
D inelastic - more to consumer
S elastic - more to consumer
What is a public good
A good that would not be provided in a market economy
-non excludability/nondiminishability
What are Barriers to entry? And E.g.s
A factor that makes it hard to enter a market
PALE
Product differentiation - more special - new comp cant compete/gain share by low prices
Absolute cost advantage - more established, decreased costs
Legal barriers - Patent or gov protention
Economies of Scale
Economies of scale
as a business grows in size, EOS on their side
Internal
Trading - bulk buying
Technical - better tech
Financial - cheaper costs on loans
management - specialised
External -due to general growth of industry - skilled staff/infrastructure
To large - problems arise
Perfect competition
No consumer or producer has market power to influence prices ‘PAH FIE’
Perfect and complete info -
Atomicity - large number of small producers
Homogenity - no product differentiation
Free entry - any firm can enter/exist as they wish
Independence - no scope for people to come together to change price
Equal access - to tech, and resources are mobile
for externalitites for tax and subsidy - who bears more of the brunt?
Demand inelastic or supply elastic - consumer DISEC
demand elastic or supply inelastic - supplier
what are the conditions for an oligopoly
few suppliers only
-effective barriers to entry
interdependence between market participants
collusive (cartel) or non collusive
firms do not compete on price
product differentiation strong
