Market - useful Flashcards
Free good
unlimited in supply, has no opportunity cost
Utility
economic term that refers to the value of something to consumers; the amount of satisfaction it brings to consumers
Change in quantity demanded
movement along the curve
Change in demand
demand curve shift
Determinants of demand
income
price of other goods (complementary, substitutes)
tastes and preferences
future price expectations
number of consumers
Income effect
if the price falls the real income increases
Substitution effect
the utility-to-price ratio increases as the price decreases
Determinants of supply
the cost of factors of production
price of related goods (complementary, competitive and joint supply)
state of technology
government intervention (taxes, subsidies, minimum wages)
expectations about future prices
weather and natural disasters
Market equilibrium
the state of rest, self-perpetuating in the absence of any outside disturbance
Consumer surplus
extra satisfaction gained by the consumers from paying a price that is lower than that which they are prepared to pay
Producer surplus
the excess of actual earnings that a producer makes from a given quantity of output, over and above the amount the producer would be prepared to accept for that output
Allocative efficiency
when a market is in equilibrium, with no external influences and no external effects
Community surplus
the sum of consumer and producer
Marginal social cost curve
social costs curve (costs of the industry are equal to the costs to society)in efficiency analysis
Marginal social benefit curve
social benefits curve (utility in the market is equivalent to the benefits to society) in efficiency analysis
Revenue
the money generated from normal business operations, calculated as the average sales price times the number of units sold
Why do governments intervene?
help consumers make better choices
promote sustainability
promote equity and economic wellbeing
Elasticity of demand
a measure of how much the demand for a product changes when there is a change in one of the determinants of demand
Price elasticity of demand
a measure of how much the quantity demanded of a product changes when there is a change in its price
Cross elasticity of demand
a measure of how much the demand for a product changes when there is a change in the price of another product
Income elasticity of demand
a measure of how much the demand for a product changes when there is a change in the consumer’s income
Determinants of PED
number and closeness of substitutes
proportion of income spent on the good
necessity of the product
time period being considered
What are the roles of price?
signalling function
incentive function
rationing function
Types of goods in YED
necessity, superior, inferior
