Micro- D, S, Consumer Flashcards Preview

3E1 Business Economics > Micro- D, S, Consumer > Flashcards

Flashcards in Micro- D, S, Consumer Deck (26):
1

Define demand

the quantity of a good or service that buyers (consumers) are
willing and able to buy at any given price (in a given time period)

2

Define supply

the quantity of a good or service that sellers (…rms) are willing and
able to sell at any given price (in a given time period)

3

Define a market

a set of arrangements by which buyers and sellers are in contact to voluntarily exchange goods or services, prices indicate availability and desire for resources

4

Define the equilibrium price

the price at which quantity demanded equals quantity
supplied

5

Name 5 determinants of Quantity demanded

Price, tastes, income, substitute and complimentary goods

6

Define price elasticity of demand

The responsiveness of quantity demanded of a good to changes in its own
price

%change In Qd / %change in Price

7

What values of price elasticity of demand is elastic, inelastic and unit elastic

Elastic is

8

Name 4 determinants of supply

Price, technology, cost of production inputs (labour and raw materials), gov regulation (taxes, subsidies etc)

9

Define price elasticity of supply

The responsiveness of quantity demanded of a good to changes in its own
price

10

What is a price ceiling

A maximum legal price that sellers can charge

Imposed to the benefit of buyers

11

What’s a price floor

A minimum legal price that sellers can charge

Imposed to the benefit of sellers

12

What’s a consumption bundle

A consumption bundle is simply a collection of particular quantities of
di¤erent goods

13

What are the two axioms of rational preference

Completeness (consumer can’t have no opinion) and Transitivity (ranking must be internally consistent, no cycles)

14

What’s weak monotonicity

when a consumer/agent prefers all consumption bundles that have more
of every good.

15

What’s strong monotonicity

when a consumer/agent prefers all consumption bundles that have more
of at leas5 one good and at least equal amounts of the other goods

16

What’s local non-satiation

Consumer cant prefer a particular amount of a good, must prefer either less or more

17

What is convexity

any two bundles that are each viewed as being at least as good as a third bundle, a weighted average of the two bundles is viewed as being at least as good as the third bundle.

"averages are better than the extremes". The concept roughly corresponds to the concept of diminishing marginal utility

18

What is strict convexity

for any two distinct bundles that are each viewed as being at least as good as a third bundle, a weighted average of the two bundles (including a positive amount of each bundle) is viewed as being strictly better than the third bundle.

"averages are better than the extremes". The concept roughly corresponds to the concept of diminishing marginal utility

19

What’s the Marginal rate of substitution

The marginal rate of substitution (MRS) measures the rate at which a
consumer is willing to substitute a small amount of one good for another

Equal to gradient of an IC (indifference curve)

20

When is the MRS constant

Substitute goods, always willing to sub one good for the other.

21

What is the condition for the optimum consumption bundle

Where the MRS (gradient of IC) is equal to the price ratio (which gives gradient of budget line)

Known as the tangency condition

As this puts consumer of highest IC for their given income

22

What’s an ordinary good

a good for which quantity demanded rises as its own
price falls

Demand curve slopes downwards

23

What’s a Giffen good

a good for which quantity demanded falls as its own price falls

An extremely inferior good, as its income effect is so strong that it outweighs its substitution effect

Real life examples are v hard to find!

Demand curve slopes upwards

24

What are the two effects that effect the quantity demanded of a good when it’s price changes

The substitution effect and the income effect.

25

What’s the substitution effect

the change in quantity
demanded that results from the change in relative prices

Shown graphically as a shift along the ORIGINAL IC due to the change in slope of the BL.

Always in the direction of the price change

26

What’s the income effect

the change in quantity demanded that results from the change in purchasing power due to the price change

Shown graphically as a shift from the position on the old IC with the new BL to a new IC with this new BL

Can be either in or against the direction of the price change. Normal good= same direction as price change (consumption increases with increasing income) and opposite for inferior goods.