MICRO - Unit 2 Flashcards
What is a market?
a voluntary meeting of buyers and sellers
What is a competitive market?
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.
What are the features of a highly competitive market?
lack of entry and exit barriers - easily enter the marker
high levels of transparency - see what everyone is doing in the marker
What is meant by demand?
the quantity of goods or services that consumers are willing to buy and able to buy at given prices in a given time period
What is market demand?
the sum of the demand of all consumers in the market
What does the law of demand state?
when price falls more is demanded. The relationship between price and quantity demanded is inverse
What does the demand curve show?
the relationship between price and quantity
On the demand curve what label is on the y and x axis?
y axis - price
x axis - quantity demanded
How is a change of price shown on the demand curve?
movement along the curve
What is a normal good?
is one where if price rises demand will fall and vice versa
What is the rational choice theory?
makes the assumption that individuals make logical decisions that maximise their personal benefit
What is a extension of demand?
price decreases quantity increases
What is contraction of demand?
increase in price, decreases quantity
What are 3 determinants of demand?
- the price of good
- consumer income
- prices of other goods and services
- consumer taste and preference
- other factors e.g advertising
What is the ‘Snob effect’ by Thorstein Veblen
where people pay more for certain products as their price increases
What are Giffen goods
certain inferior products where demand rose as consumer incomes increase
What is a complimentary good?
those that are often brought together
Which way is the shift if demand increases?
right
Which way is the shift if demand decreases?
left
What is a substitute?
competing alternative for another product e.g coke and pepsi
What causes shifts in demand?
- changes in price or availability of substitutes
- changes in price or availability of complements
- changes in taste
- changes in consumer income
What causes a rightward shift in the demand curve?
- 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
What are inferior goods?
is a good where demand decreases as income increases and demand increases as income decreases
What are luxury goods?
where demand increases more proportionally as income rises
What are 3 types of elasticity?
price
income
cross
What is the formula for price elasticity?
percentage change in QD/ percentage change in P
What is the PED coefficient for perfectly inelastic?
0
What is the PED coefficient for inelastic?
0<1
What is the PED coefficient for unitary elasticity?
1
What is the PED coefficient for elastic?
1 > infinite
What is the PED coefficient for perfectly elastic?
infinite
What is the relevance to business of perfectly inelastic?
the business can charge as high price as it wants to.
What is the relevance to business of price inelastic?
firm should increase in P, D will decrease in QD but increase in total revenue