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Microeconomics > Price determination in a competitve market > Flashcards

Price determination in a competitve market Flashcards

1
Q

What does the law of demand state?

A

As the price of a good rises, the quantity demanded falls

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2
Q

Name the determinants of demand

A 
Income
Substitutes
Technology 
Compliments 
Weather
Advertising

Tip - I Sell Tacky Condoms With AIDS

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3
Q

Name the determinants of supply

A

Production costs
Taxes
Technology
Subsidies

Tip - Peter Tickles Toms Sausage

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4
Q

Price Elasticity of Demand (PED) equation

A

Percentage change in QD
over
Percentage change in Price

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5
Q

Income Elasticity of Demand (YED) equation

A

Percentage Change in QD
over
Percentage Change in Income

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6
Q

Cross Elasticity of Demand (XED) equation

A

Percentage Change in the QD of good X
over
Percentage Change in the Price of good Y

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7
Q

Price Elasticity of Supply (PES) equation

A

Percentage Change in QS
over
Percentage Change in Price

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8
Q

What do the values of PED and PES show?

A

1 - -1 = Inelastic (usually negative if PED, positive if PES)
More than 1 = Elastic

Tip - A wider range is more ELASTIC

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9
Q

What do the values of YED show?

A

Negative = Inferior good
Small value = Normal good
Higher than 1 = Superior good

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10
Q

What do the values of XED show?

A 
\+ = Substitute
- = Complement
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11
Q

What are the main influences on PED?

A

Degree of necessity
Habit-forming goods
Substitutes
Time

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12
Q

If the demand of a good is elastic, what happens to total revenue?

A

Price increase = Decreased TR

Price decrease = Increased TR

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13
Q

If the demand of a good is inelastic, what happens to the total revenue?

A

Price Increase = Increased TR

Price Decrease = Decreased TR

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14
Q

What are the main influences on PES?

A

Time
Spare Capacity
Ease of switching products

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15
Q

What is joint demand?

A

When the increased demand of one produce leads to increased demand for its complement

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16
Q

What is composite demand?

A

If a good is used, less is available for others

17
Q

What is derived demand?

A

If the demand for a good rises, the demand for its components will also rise

18
Q

What is joint supply?

A

When increased demand for one good leads to a higher supply of another good

Microeconomics (5 decks)

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