Markets Flashcards

Question

Trade adv.? Why is it so imp? (2) How?

Answer 1

Everyone can buy stuff they're no longer making themselves Specialisation makes trade abs. vital - economies (+ indvs + firms) have to be able to obtain what they're not making themselves = Necessary to have way of exchanging g&s between c's Swapping goods = one way country can get what it wants Most efficient way = money/exch. rate. Money = medium of exchange - both buyer/seller values

Answer 2

Manufacturing something in order to sell Converting inputs (e.g. raw mats/labour) -\> outputs (selling goods)

Answer 3

4 FoPs - land/labour/capital/enterprise Tangible - raw mats/machines + Intangible - ideas/talent/knowledge Should have exchangeable value (to be sold)

Answer 4

Output per Unit of Input Employed Way of measuring how efficiently company/economy is producing its output If 1 company could take same amount as inputs/FoPs as another but produce more/greater output =\> greater prod'vity Could work out overall level of prod'vity (4 FoP's) as well as any 1 of 4 e.g labour \*Improving 1 FoP prod = increases overall prod'vity

Answer 5

Output per worker/Output per hr worked Amount of output prod. in partc. time ÷ total no. of workers/total hours worked by all Comparing workers against others Improvs in lab. prod. could be result of of better training/experience/imprv. tech /specialisation - each worker conc. on performing tasks they're good at/practised a lot/trained = able to prod. more than doing lots of diff tasks

Answer 6

Outputting desired amount of g/s for lowest avg cost of production Occurs at lowest point on avg cost curve Total cost ÷ Output;

Answer 7

Average cost curve = shows how firm's avg costs of prod. changes as firm's level of output varies (prod. more/less good) v. low levels output = high avg cost level output increases (as firm takes advg of ecos of scale) = firm's avg cost of prod. falls = firm more efficient if level of output cont. to increase, firm's avg of prod = starts to incr. again (diseconomies of scale)

Answer 8

To be prod. efficient, economy must be producing on PPF Only achieved when waste is eliminated from prod. process - on PPF = working without wasting resources

Answer 9

Cost advantages of production on a large scale Avg cost to firm = high if not much is made Make more = avg cost of each falls because of ecos of scale Internal & External

Answer 10

Changes within firm Technical economies of scale Purchasing ecos of scale Managerial ecos of scale Financial eos Risk-bearing eos

Answer 11

Production line methods (by large firms) = lots at low avg. cost Large firms = purchase other specialised equipment to reduce avg costs Workers - specialise = more efficient (large firms usu.) Law of measured dimensions building new warehouse, price = total area walls&roof. if you make dims twice as big, total area=4 times as much so cost = 4ice. \*but volume = 8times = more storage space for each ££ Oil tankers - bigger = reduce cost of transp'ing each unit oil

Answer 12

Large firms making lots of goods = need large quants raw materials =\> negotiate discounts with suppliers + Suppliers' costs = lower if deliver large amounts e.g. fuel, driver - smaller cost per unit

Answer 13

Large firms = able to employ specialist managers to take care of diff. areas of business e.g. finance, cust. service = spec. managers gain expertise & experience in spec. area of business **= better decision-making abilities in that area** + no. of managers needed = doesn't depend directly on amount goods produced e.g. firm won't need twice as many managers to prod. 2ice many goods **= reduces mang'ment cost per unit of unit** [labour prod]

Answer 14

Larger firms = can often borrow money at lower rate of interest - lending seen by banks as less risky if firm's bigger (more likely to get money back)

Answer 15

Large firms = can diversify into product areas (e.g. make diff things) + diff. markers (e.g. countries) Demand for any 1 product in any 1 market can vary but diversification = more predictable overall demand (if demand for 1 falls, there's other products/diff markets whose demand somewhere increases)

Answer 16

Local colleges may start to offer courses/qualifications needed by big local employers = reduces firms' training costs Large companies in area -\> improvements in road networks/local public transport Lots of firms doing similar/related things locating near each other = share resources e.g research facilites + suppliers could locate in same area = reduces transport costs

Answer 17

Extremely successful companies can gain monopoly power in market As avg cost for prod. falls, firms can sell at lower £££ - undercutting competition = Bigger market share - force competitors out of business = only suppllier = it has monopoly

Answer 18

Firms can encounter diseconomies of scale as it increases in size = 'disadvantages of being big'

Answer 19

Wastage & loss can increase - materials seem in plentiful supply so waste more. Bigger warehouses = lost/mislaid Communication - more difficult as firms grow = staff morale Managers, less able to control what goes on

Answer 20

As whole industry becomes bigger, £ of raw materials may increase (as demand increases) If local supplies, not sufficient - more exp. goods from further may have to be bought = buying more doesn't necc. decrease costs per unit

Answer 21

£££ charged & Q sold = determined by level of demand & supply in market

Answer 22

Q of G/S that consumers are willing & able to buy at given price at partc. time

Answer 23

Shows relationship between price & qd (at any given point along curve = shows q of g/s that would be bought at that £)

Answer 24

Caused by changes in price

Answer 25

Downwards slope - higher prices =\> lower q demanded Consumers aims to pay lowest price possible for g&s As prices decrease, more consumers willing/able to purchase g/s =\> lower prices = higher demand

Answer 26

Population Income Price Changes in taste & fashion - pop/out of fash. Price of other goods

Answer 27

Amount g/s consumers can afford can affect diff types of goods' demand Normal goods e.g. DVDs =\> demand more as real income increases = shift to right Inferior goods e.g. cheap clothing, bus travel =\> demand less as real income rises (demand more exp, goods) More equal distribution of income =\> demand curves for luxury goods to shift to left (less rich) + other d curves to left - more people afford everyday items (less poor)

Answer 28

Rise in gen level of pop = more indvls demanding g/s Decline = qd decreases = d. curve shifts to left Low br in UK = manuf of babywear/prods = decline in demand

Answer 29

Intro of new prods/invention = can push some prods into decline \*Gov. can influence taste/fashion of consumers - encouraging/discouraging consp'tion of certain g/s e.g. beef & mad cow disease

Answer 30

Substitutes=altn'ives e.g. Coke & Pepsi: if Pepsi price doubles, consumers can switch to Coke = movement along Pepsi demand curve & rightward shift in Coke d. curve Complements = joint demand e.g. strawberries&cream: if £ of strwb went down, there'd be incr. in qd/movement = higher demand for cream

Answer 31

The demand for a good/FoP used in making another good/services Increase in demand for cars = steel demand increases

Answer 32

More than 1 use Oil used for fuels/to make plastics Changes in demand curve for oil =\> changes in demand curve for plastic

Answer 33

Measure of how much demand for a good changes with a change in one of key influences on demand - price of good, level of income & price of another good

Answer 34

Measure of how q demanded of good responds to change in its price How consumers react to change in price

Answer 35

%change in QD ÷ %change in ££ %change in QD = (chnge in demand ÷ orgnl demand)×100 %change in ££ = (change in ££ ÷ original ££)×100

Answer 36

Negative PED - demand falls as prices increases

Answer 37

ELASTIC demand % change in ££ causes larger %change in QD Higher PED = more elastic demand Normal demand curve - downwards slope

Answer 38

Perfectly ELASTIC demand Any increase in price will cause demand to fall to 000

Answer 39

INELASTIC demand %change in £ will cause smaller %change in QD Smaller PED = more inelastic Cigarettes = fairly inelastic

Answer 40

Perfectly INELASTIC demand Any change in ££ = no effect on QD

Answer 41

Unit elasticity %change in ££ = %change in QD

Answer 42

Measures how much demand for good changes with change in real income How demand changes with income

Answer 43

%change in QD of good ÷ %change in real income

Answer 44

Income ELASTIC More than proportionate change - as incomes rise, demand rises Normal goods Upwards slope

Answer 45

Income INELASTIC small change steep upwards slope

Answer 46

Perfectly INELASTIC No matter how high incomes rise, demand = remains constant Vertical line

Answer 47

Measure of how QD of 1 good responds to change in PRICE of another good

Answer 48

%change in QD Good A ÷ %change in PRICE of Good B

Answer 49

Positive XED

Answer 50

Negative XED

Answer 51

Availability of subs Type of g/s Proportion of income spent on good Time

Answer 52

More subs =\> more elastic - many subs = consumers can easily switch to something else if ££ prices No. of subs = depends on how closely its defined e.g.peas = subs like carrots but veg. as group = fewer subs

Answer 53

Luxury/necessity - essential iterms e.g. milk = price inelastic but non-essential e.g. tablets = price elastic Habit-forming/addictiveness = inelastic e.g. cigs Purchases that can't be postponed = e.g. emg. plumbing servs = inelastic

Answer 54

Demand for prods tha need large prop of cons' income e.g. fridge = more elastic than demand for small prop. of income e.g. toothpaste = consumers more likely to shop around for best price of exp. good

Answer 55

Prices become elastic in long run as it becomes easier to change to alternatives (time to shop around) = cons. have longer to respond to £change Long run = habits/loyalties can change

Answer 56

Increase in ££ will reduce TR

Answer 57

Increase in ££ will increase firm's TR

Answer 58

Positive YED Income rises = demand rises Size of demand increase depends on prod's elasticity Upwards slope - Q against Income

Answer 59

Negative YED Demand falls as income rises A rise in income leads to inferior good being replaced by one cons'd higher qual Downwards slope with inc & q

Answer 60

Show if 2 goods = Sub? or Compl?

Answer 61

If 2 goods = complements = -XED Increase in £ of 1 e.g. strwb = reduction in demand for compl e.g. cream

Answer 62

If 2 goods = subs = +XED Fall in £ of 1 sub e.g. rice = reduce demand for another e.g. pasta Closer sub = higher + XED e.g. ballpoints + fountains = higher XED than ballpoints + pencils

Answer 63

Independent goods + don't directly affect demand of each other e.g. bananas & slippers

Answer 64

Useful in sales forecasting If you know YED of product + likely changes in income, then can predict sale levels Pricing policy You could reduce price for normal good when incomes are expected to fall (/demand for normal goods, expected to reduce, usually) so could limit expected reduction in demand for good (demand doesn't decrease massively so smaller cost/loss)

Answer 65

Firm could choose to supply range of goods with various YEDs During boom, demand for product with high YED will increase, but that means demand for that prod will decrease just as much when in recession. So firm will want to supply prods with low YED so they can still earn revenue during recession

Answer 66

Useful for firms - tells them how to react to changes in price of related products so they can maximise demand for their prods e.g. if firm sells product that has close sub & that sub's price drops, they could lower price of their prod to reduce potential/possible fall in demand

Answer 67

Find it useful to know how demand for goods might change during booms & recessions when setting policies e.g. demand for bus services may increase with falling incomes in recession so gov. would have to make sure sufficient bus services were provided

Answer 68

Q of g/s that producers supply to the market at given price + partc. time

Answer 69

Increase in ££ causes extension in supply Movement along supply is caused by change in price

Answer 70

Producers/sellers aim to max. profit Higher price for g/s = higher profit = incentive to expand production & increase supply Incr ££ = becomes profitable for marginal/extra firms to supply market [firms just breaking even/point when profits=cost so no real profit] Increasing supply = incr. costs - firms will only prod. more if £ increases by more than costs

Answer 71

Cost of production Improvements in tech Prod'vity of FOPs Indirect taxes & subsidies Prices of other goods No. of suppliers

Answer 72

Increase in 1/more costs of prod e.g. raw materials/wages etc. will decrease producers' profits & cause supply curve to shift to left e.g. increase in cost of cocoa = reduction in supply of choc. but decrease in cost of packging = increase in supply

Answer 73

Can increase supply - reduce costs of prod e.g. improv in energy efficiency of commercial freezers could reduce energy costs of food company

Answer 74

Increased prod'vity of FOP = company gets more output from unit of factor e.g. more productive staff = incr. in output + shift to right

Answer 75

Indirect tax on good = increases costs for producer =\> supply reduced + s curve to left Subsidy on good = encourages its production - reduces costs for producers =\> leads to incr. level of supply & supply curve shifts right

Answer 76

If price of Prod A made by firm increases then firm could switch production from less profitable Prod B to increase production of A + make the most of higher price they can obtain = supply increased

Answer 77

Increase in no. of suppliers in a market (incl new firms) = will increase supply in market at each/every price = supply increased/shift to right

Answer 78

When production of 1 good also results in production of another Increase in demand for beef increases supply of leather

Answer 79

Measure of how quantity supplied of good responds to change in its Price Gen. positive - higher £ = greater supply

Answer 80

%change in QS ÷ %change in £

Answer 81

Elastic supply %change in price causes larger %change in q supplirf Higher PES value = more elastic supply for good Steady upwards slope

Answer 82

Perfectly INELASTIC supply Any fall in price causes QS to reduce to 0 When min. prod. cost of something = £100 then that cost has to be paid by cons. so slightest decrease in £ means production not possible Horizontal line

Answer 83

INELASTIC supply %change in price causes smaller %change in QS Smaller PES = more inelastic Steep upwards slope

Answer 84

Perfectly INELASTIC supply Any change in £ = no effect on QS Vertical line

Answer 85

Unit elasticity of supply If %change in QS = %change in £ 50% increase in price = 50% increase in QS

Markets Flashcards

(109 cards)