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ECON Intro to market and market failures (Theme 1) > how markets work > Flashcards

how markets work Flashcards

(85 cards)

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1
Q

What is price determination

A

Where quantity demanded is equal to quantity supplied. This is known as price equilibrium or market clearing price

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2
Q

Where is the market clearing price shown on a graph

A

The intersection of the original demand line and supply line

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3
Q

Where is the new market clearing price shown on a graph

A

The intersection of the changed demand line and the supply line

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4
Q

What is the price elasticity of demand

A

The responsiveness of demand (hiw muxh does it change) after a change in the goods own price

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5
Q

What is the formula fir PED

A

Percentage change in QD ÷ Percentage change in Price

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6
Q

What does it mean to be elastic

A

Demand changes more than the price

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7
Q

What does it mean to be inelastic

A

Demand changes less than the price

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8
Q

What are factors that impact PED

A

.no of close substitutes
.price if product in relation to total income
.cost of switching between different products
.brand loyalty and habitual consumption
.necessity and luxury
.Time

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9
Q

The more the amount of close substitutes, the more…..the demand is

A

Elastic

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10
Q

If the % budget is high, demand is more…

A

Elastic

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11
Q

If the cost of switching is high, demand is more…

A

Inelastic

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12
Q

If levels of brand loyalty is high, demand is…

A

Less price elastic

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13
Q

Persuasive advertising can make demand price more….

A

Inelastic

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14
Q

Luxury goods are…

A

Elastic

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15
Q

Necessities are more…

A

Inelastic

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16
Q

More time is…

A

Elastic

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17
Q

Less time is…

A

Inelastic

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18
Q

If PED is 0, demand is…

A

Perfectly inelastic

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19
Q

How do you know if demand is inelastic

A

PED is between 0 and -1

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20
Q

If PED is -1, demand is…

A

Unitary elastic

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21
Q

How do you know if demand is elastic

A

PED is less than -1

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22
Q

What does the demand line have to look like to indicate that it is inelastic

A

Very steep

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23
Q

What does the demand line have to look like to indicate that it is elastic

A

Less steep

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24
Q

What does the demand line have to look like to indicate that it is unitary elastic

A

A inward curve

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25
If a good is inelastic what do you have to do to the price to increase revenue
Increase price to increase revenue
26
If a good is elastic what do you have to do to the price to increase revenue
Decrease price to increase revenue
27
What is the Income Elasticity of Demand
Shows how responsive the demand for a product is to change in real income
28
What is the formula for YED
% change QD ÷ % change Real Price
29
What type of YED does normal goods have
Positive YED
30
What type of YED does inferior goods have
Negative
31
What type of correlation does the demand line for normal goods have
Positive correlation
32
What type of a correlation does the demand line for inferior goods have
Negative
33
What type of a good is it if the YED is greater than 1
Luxury good
34
What type of a good is it if the YED is greater than 0 but less than 0.5
Necessities
35
What is the cross price elasticity of demand
Measures the responsiveness of demand for good x following a change in the price of good y
36
Relationship of XED with substitutes
With substitutes there is an increase in the price of one good (ceteris paribus) will lead to an increase jn demand for a rival product
37
Relationship kf complementary goods and demand
A fall in one product causes an increase in demand for the complementary product
38
What type of XED is substitute
Positive
39
What type of a XED is complimentary goods
Negative
40
When can you identify a close substitute
When XED value is closer to 1
41
How to identify that a good is close complimentary
The XED value is closer to -1
42
What is price elasticity of supply
It measures the relationship between the change in quantity supplied and a change in price
43
What value shows that PES is elastic
Greater than 1
44
What value shows that PES is in elastic
Less than 1
45
How is elastic PES shown on a graph
Less steep line
46
How is inelastic PES shown on a graph
Very steep line
47
If supply is elastic, what does it allow producers to do
They can increase their output without a significant rise in costs or a time of delay
48
If supply is elastic what affect does this have on firms
Firms will find it hard to change their production in a given period of time and rise more significantly
49
What factors affect PES
.spare productive capacity .ability to stockpile .time period and production speed .ease and cost of factor substitution
50
If you have spare capacity, PES is…
Elastic
51
If you can stockpile, PES is…
Elastic
52
If factors are substitutable, PES is…
Elastic
53
If it takes less time to produce, PES is…
Elastic
54
Is elastic supply more or less volatile
Less volatile
55
Is inelastic supply more or less volatile
More volatile
56
What is the topic Behavioural economics about
The psychological reasonings behind certain habits and purchasing
57
What is traditional economics
When consumers are always rational
58
What is traditional economic behaviour affected by
.perfect knowledge .maximum utility
59
What is behavioural economics
Consumers are always irrational
60
What is behavioural economics impacted by
.social learning .inertia .computational weakness
61
What is computational weakness
Economics that are there but many people don’t understand the actual basis of it
62
What are examples of computational weakness
Food labels, pension, financial markets and mobile deals
63
What is herd behaviour
When we often make decisions based on those around us or to fit social norms
64
What is bounded rationality
Suggests that consumers opt to satisfied rather than maximise
65
What is habitual behaviour
Repeated purchasing as people prefer to carry on behaving as they have always done
66
What is choice architecture
The layout of ho choices are presented and sequenced
67
What is an example for choice architecture
Salad bar- put it before the hot food/main food, o that more people take more salad and m=be more healthy
68
What is the new law associated with choice architecture
It is that chocolate bars can’t be presented/ sold near the till to prevent impulse buying
69
What is intertia
You aren’t bothered to buy certain things so you buy others
70
What is indirect tax
It is is a tax on expenditure that is imposed by the government that increases the supply costs faced by producers and so market prices rise, leading to a fall in demand
71
What are examples of indirect taxes
VAT, health and environment tax (tobacco, landfill, plates ect…)
72
What are direct taxes often used for
To correct market failure by lowering demand
73
What are the 2 types of indirect tax
Specific tax and Ad Valoren tax
74
What is specific tax
Set tax per unit
75
What is Ad Valoren tax
Percentage tax
76
What is the indidencen of tax
It denotes whether the consumer or producer gets the burden of payment
77
How do u work it tax per unit, consumer and producer incidence (CI & PI)and total tax
Tax per unit= P1 - Pe CI= P1 - Middle Price PI= Middle Price - Pe Total tax= Q1 x tax per unit
78
Who is the tax absorbed by if the supply is demand is elastic
It is absorbed by the supplier
79
Who is the tax absorbed by if the demand is inelastic
It is absorbed by the consumer
80
What is a a subsidy
It is a form of government support that helps lower price and increase consumption of a good or service
81
If demand is inelastic the subsidy is given to the….
Consumer
82
If demand is elastic subsidy is given to the…
Producers
83
What are the most common fields subsidies are given too
Environmental fields such as solar panels, electric cars ect…
84
Why are subsidies given to train apprenticeships
Because companies don’t want inexperienced people working and also have to pay them so the gov gives them a subsidy as a form of incentive which leads to a decrease in business cost
85
What are reasons why subsidies are generally given
.to help families .to encourage output and investment in fledging sectors .protect jobs in loss-making industries .make healthcare and treatments more affordable

ECON Intro to market and market failures (Theme 1) (5 decks)

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