Microeconomics Flashcards
(42 cards)
Define Market
A market is a decision-making institution where buyers (demanders) and sellers (suppliers) negotiate the price for a particular good or service.
Define Market Power
relates to the ability of a firm to control or influence prices and the output of an industry.
Define Market Faliure
Market Failure occurs when the price system allocates resources inefficiently reducing the overall satisfaction of societies wants, wellbeing and living standard.
Define asymmetric information
Asymmetric information occurs when one group has more knowledge of the market than others. Buyers and seller need complete and reliable knowledge so the market can allocate resources efficiently.
Such as buyers lacking complete information required to make rational decisions about how to use their resources.
This market failure can only be prevented if the Government intervenes in the market.
Define Externalities
Externalities represent a market failure and are the costs or benefits that arise from the economic activities of firms and households that are passed onto third parties not involved in the original activity.
Define Market structure
Market structure refers to the type and level of competition that exists in various markets, such as monopoly or pure competition. Having many different features and ranging from strong competition to weaker competition.
Define Pure competition
Pure competition exists when there are many buyers and rival sellers competing strongly. It implies that firms are price takers, potential competitors can easily enter and exit the market, there is perfect knowledge of relevant conditions in the market by buyers and sellers to allow them to make rational decisions.
Define Oligopoly
Oligopoly exists where a few large firms control the output of a product for which there is no close substitute. Entry and exit into the market is fairly difficult.
Define Pure monopoly
Pure monopoly exists when a single firm controls the output of a particular market. That firm is a price maker and competition is weak.
Define monopolistic competition
monopolistic competition is competition in the market between many buyers and sellers of goods and services that are close but not perfect substitutes because of the existence of brand names and other means of product differentiation.
Good things about high levels of market concentration/ market power. Occurring in monopolies and oligopolies.
In some cases, large scale organizations can deliver better per unit cost reductions and lower prices that can be affordable. They can also undertake more innovative research and development than small businesses.
This is good in natural monopolies such as water authorities and power delivery.
How is high competition a good thing?
Raging competition helps to keep prices low, quality up and efficient high.
Problems of high competition?
In efforts to survive, profit-hungry firms may aggressively cut cost, which can in the short term, reduce public safety, product durability, quality assurance and customer satisfaction.
Define Price
Price is the purchase cost or amount paid in exchange for the supply of goods and services. A rise in price results and a contraction in quantity demanded for that G&S, a fall is price causes an expansion in demand.
Define demand
Demand refers to the quantity of a G or S that consumers are willing to
purchase at a given price. This can be shown on a downwards sloping Demand Curve that indicates the quantity of a G or S demanded responses inversely to price.
What is the Law of Demand
The Law of Demand is the inverse relationship between the quantity demanded and the price of a G or S.
Define Supply
Supply refers to the quantity of G or S that sellers are willing to make available at any given price. This can be drawn by a supply Curve which is upward sloping, indicating a positive relationship between price and quantity.
Define Elasticity
Elasticity measures the responsiveness of the demand for, or supply of a product that is relatively responsive to changes in its price.
What is Relative elasticity in terms of demand
The quantity of a particular good or service demanded changes more than proportionally with the change in price.
What is unit elasticity in terms of demand
The quantity demanded change by the same proportion as the change in price
What is relative inelastic in terms of demand
When the quantity demanded changes less than proportionally to the change in price.
What other ways help determine elasticity of demand
- type of item
- substitutability
- the time period
- cost and relative importance
- minor complementary items
Define Material Living standards
Material living standards refers to the economic wellbeing of individuals as affected by actual per capita consumption of G and S and income per year. It is beneficial both personally and economically as access to G&S increase.
Define Non-Material Living standards
Non-material living standards refers to the quality of life and could be affected by the amount of leisure time, happiness, life expectancy, crime rate and quality of the natural environment. Non-material living standards depends on personal values and can be subjective.
