MICRO - Unit 2 Flashcards
(84 cards)
1
Q
What is a market?
A
a voluntary meeting of buyers and sellers
2
Q
What is a competitive market?
A
is when there a large number of buyers and sellers that all accept the market price which is not set by individuals decision but the interaction of all those take part in market.
3
Q
What are the features of a highly competitive market?
A
lack of entry and exit barriers - easily enter the marker
high levels of transparency - see what everyone is doing in the marker
4
Q
What is meant by demand?
A
the quantity of goods or services that consumers are willing to buy and able to buy at given prices in a given time period
5
Q
What is market demand?
A
the sum of the demand of all consumers in the market
6
Q
What does the law of demand state?
A
when price falls more is demanded. The relationship between price and quantity demanded is inverse
7
Q
What does the demand curve show?
A
the relationship between price and quantity
8
Q
On the demand curve what label is on the y and x axis?
A
y axis - price
x axis - quantity demanded
9
Q
How is a change of price shown on the demand curve?
A
movement along the curve
10
Q
What is a normal good?
A
is one where if price rises demand will fall and vice versa
11
Q
What is the rational choice theory?
A
makes the assumption that individuals make logical decisions that maximise their personal benefit
12
Q
What is a extension of demand?
A
price decreases quantity increases
13
Q
What is contraction of demand?
A
increase in price, decreases quantity
14
Q
What are 3 determinants of demand?
A
- the price of good
- consumer income
- prices of other goods and services
- consumer taste and preference
- other factors e.g advertising
15
Q
What is the ‘Snob effect’ by Thorstein Veblen
A
where people pay more for certain products as their price increases
16
Q
What are Giffen goods
A
certain inferior products where demand rose as consumer incomes increase
17
Q
What is a complimentary good?
A
those that are often brought together
18
Q
Which way is the shift if demand increases?
A
right
19
Q
Which way is the shift if demand decreases?
A
left
20
Q
What is a substitute?
A
competing alternative for another product e.g coke and pepsi
21
Q
What causes shifts in demand?
A
- changes in price or availability of substitutes
- changes in price or availability of complements
- changes in taste
- changes in consumer income
22
Q
What causes a rightward shift in the demand curve?
A
- increase in price of substitute goods
- decrease in price of complementary goods
- increase in disposable income
- successful advertising campaign making people think more favourably about the good
- increase in population size
23
Q
What are inferior goods?
A
is a good where demand decreases as income increases and demand increases as income decreases
24
Q
What are luxury goods?
A
where demand increases more proportionally as income rises
25
What are 3 types of elasticity?
price
income
cross
26
What is the formula for price elasticity?
percentage change in QD/ percentage change in P
27
What is the PED coefficient for perfectly inelastic?
0
28
What is the PED coefficient for inelastic?
0<1
29
What is the PED coefficient for unitary elasticity?
1
30
What is the PED coefficient for elastic?
1 > infinite
31
What is the PED coefficient for perfectly elastic?
infinite
32
What is the relevance to business of perfectly inelastic?
the business can charge as high price as it wants to.
33
What is the relevance to business of price inelastic?
firm should increase in P, D will decrease in QD but increase in total revenue
34
What is the relevance to business of unitary elasticity?
increasing or decreasing price will lead to no change in total revenue
35
What is the relevance to business of price elastic?
a firm should decrease P, D will increase but increase total revenue
36
What is the relevance to business of perfectly elastic?
if the business raises price above a certain point demand would decrease
37
How do you work out percentage change?
change/ original X 100
38
What are the determinants of price elasticity of demand ?
substitutes - if there are no close or lack of available substitutes the product price is likely to be inelastic
time - in the short run more product prices are likely to be inelastic as consumer find it hard to change their shopping habits.In the long run the price would be elastic as consumer would adjust to the changes
39
What are the determinants of price elasticity of demand ?
substitutes - if there are no close or lack of available substitutes the product price is likely to be inelastic
time - in the short run more product prices are likely to be inelastic as consumer find it hard to change their shopping habits.In the long run the price would be elastic as consumer would adjust to the changes in market conditions
definition of market - wider the marker PED more inelastic
40
What is PED?
measures the responsiveness of demand to change in price
41
What is YED?
measures the responsiveness of demand to change in income
42
What is the formula for YED?
percentage change in QD/ percentage change in income
43
What is the YED coefficient of income inelastic?
-1 < +1
44
What is the YED coefficient of income elastic?
< - 1 or > + 1
45
What is the relevance to the business of income inelastic?
demands changes at a lower proportion than the increase in income
46
What is the relevance to the business of income elastic?
demands changes at a higher proportion than the increase in income
47
What is the sign for a normal good?
+ (positive income elasticity of income)
48
What is the sign for a inferior good?
- (negative income elasticity of income)
49
What are the determinants of income elasticity of demand?
whether the good is a necessity or a luxury - at higher standards of living income increases so more luxuries are brought and necessities is satiated
the level of consumer income - poorer consumers spend their income on necessities
higher standard of living - more likely to have a more disposable income, more luxuries sold
economic of cycle - when in recovery mode and entering a boom income increases and spending increases on necessities and then inferior goods. When the economy is in decline and leading into slump disposable incomes decrease and consumers spend less of incomes on luxury goods, moving to necessities and then inferior goods
50
What are the 2 types of normal goods?
necessities and luxuries
51
What are necessities?
are products with positive YED that is between 0 and 1
52
What are luxuries?
are products with positive YED that is more than 1
53
What is are the products called with a negative YED less than 0 ?
inferior goods or services
54
What is the meaning of XED?
measure of responsiveness of demand for one good x ato a change in price of good y
55
What is the formula for XED?
percentage change in QD of X / percentage change in P of Y
56
What is the XED coefficient for cross-price inelastic?
-1 < +1
57
What is the XED coefficient for cross-price elastic?
< -1 or > + 1
58
What is the relevance to the business of cross-price inelastic?
demand for good X changes at a lesser proportion than the change in price of good of Y
59
What is the relevance to the business of cross-price elastic?
demand for good X changes at a greater proportion than the change in price of good of Y
60
What are the determinants of cross-elasticity of demand?
substitute - will have a positive elasticity, as the price of Y increases the demand for good X will increase, close substitute will have a higher XED
complement - have a negative cross-price elasticity, as the price of good Y increases the demand for X will decrease. Close compliments will have a higher XED as consumer demand for good X will be more sensitive to a change in price of good Y
firms will attempt to change the cross-elasticity of their products - substitutes, firms will try to differentiate their products from competitors done through advertising
complements - firms will produce a range of complements to accompany their core products
61
What is supply?
the quantity of a good or service that all the firms or producers in the market plan to to sell at different prices
62
What is market supply?
the sum of the supply of all firms or producers in the market at different market prices
63
What way is the supply curve sloping?
up
64
Why does the supply curve slope upwards?
economist assume that a firm's objective is to profit maximise
65
What does a supply curve show the relationship between?
price and quantity
66
What are the determinants which affect supply?
the price of the good
the impact of changing costs of production
technology progress
prices of other goods and services
government policies e.g taxes and subsidies
67
What are the 2 types of taxes?
indirect and direct
68
What are direct taxes?
taxes which are paid directly to the government e.g income tax
69
What are indirect taxes?
is applied to the manufacture of goods and services e.g VAT
70
What is joint supply?
when production of one product leads to an increase supply of by product
71
What is competing supply?
when materials are used to produce one good but can't produce another
72
What is price elasticity of supply (PES)?
is a measure of the responsiveness of supply to a change in price
73
What is the calculation for PES?
percentage change in QS / percentage change in P
74
What does it mean if the PES coefficient is 0?
perfectly inelastic
75
What does it mean if the PES coefficient is 0-1 ?
inelastic
76
What does it mean if the PES coefficient is 1?
unitary elastic
77
What does it mean if the PES coefficient is 1 - infinity ?
elastic
78
What does it mean if the PES coefficient is infinity ?
perfectly elastic
79
What is the relevance to a business if it is perfectly inelastic?
the business does not change S in response to change in price
80
What is the relevance to a business if it is inelastic?
if P rises, S increases but at a lesser proportion to the increase in P
81
What is the relevance to a business if it is unitary elastic?
increasing or decreasing price will lead to a proportional change in supply
82
What is the relevance to a business if it is elastic?
If P rises, S increases but at a greater proportion to the increase in P
83
What is the relevance to a business if it is perfectly elastic?
producers will supply any amount above a certain P
84
What are the factors which determine PES?
length of production period - more elastic if firms take less time to produce (hours/days - elastic) (months/years - inelastic)
availability of spare capacity - if resources can be readily available, production can be quicker
ease of switching between alternative methods of production - switching capital and labour, more elastic
ease of accumulating stock - when stocks of unsold goods are stored at low cost firms can respond quickly to a sudden change in demand
number of competitors
time
substitutes
