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Microeconomics Y12 > Supply And Demand > Flashcards

Flashcards in Supply And Demand Deck (47):
1

Define demand

The quantity of a product that consumers are willing and able to purchase at various prices over a period of time

2

Effective demand

Quantity of a good or service that consumers are actually buying at the current market price

3

What relationship is there between price of a product and the quantity demanded

An inverse relationship

4

What do rational customers look to do

Wish to maximise satisfaction or utility from consumption by correctly choosing how to spend their limited income

5

Two types of goods

Inferior
Exceptional

6

Substituion effect

Describes the change in demand for a product when it’s relative price changes

7

Income effect

A fall in price increases the real purchasing power of consumers- allows people to buy more with a given budget

8

Demand curve

Relationship between the quantity demanded and the price of the product

9

Demand schedule

Data used to draw the demand curve for the product

10

What way does the demand curve slope and why

Downwards from left to right due to the law of demand

11

What is the law of demand

At higher prices less will normally be demanded than at lower prices

12

Determinants of demand

Consumers RDI
Substitutes
Complements
Change in tastes and fashions

13

Disposable income

Income after taxes

14

Real disposable income

Income after tax and distorting effects of inflation

15

Consumer surplus

The extra amount a consumer is willing to pay for a product above the price they actually do pay

16

Price distribution

The action of selling the same product at different prices to different buyers- to maximise sales and profits

17

Diminishing marginal utility

The more of something we consume the less likely we are to want more of it

18

Law of supply

At higher prices we would expect more to be supplied

19

Production

The process of turning inputs of scarce resources into an output of goods or services

20

Define supply

The willingness and ability of firms to produce a given quantity of output in a given period of time, or at a given point in time, and take it to market

21

Why do supply curves slope upwards

Supply comes from businesses
Businesses are driven by profit
At higher prices, higher profit margins
Supply is higher at higher prices

22

Factors affecting supply

Availability of factors
Cost of factors
Technology
Taxes
Subsidies
Weather and natural factors

23

What is the golden rule?

Business Taxes affect supply not demand

24

Producer surplus

The difference between what producers are willing and able to supply a good for and the price they actually receive

25

Total surplus

Total gain to society from the production and consumption of a good

26

Equilibrium

State of physical balance

27

Define elasticity

Responsiveness and sensitivity

28

PeD

%🔺Qd / %🔺P

29

PeS

%🔺Qs / %🔺P

30

XeD

%🔺Qd of X / %🔺P of Y (another product)

31

YeD

%🔺Qd / %🔺Y

32

When does an elastic demand curve occur

If PeD is greater than 1 or less than -1
(Quantity demanded is highly responsive to a change in price)

33

When does an inelastic demand curve occur

If PeD is less than 1 but greater than -1
(Quantity demanded is not very responsive to a change in price

34

When does a unit elastic demand curve occur?

If PeD is equal to 1
(The percentage change in quantity demanded is equal to the percentage change in price)

35

When does a perfectly inelastic demand curve occur?

If PeD is equal to 0
(A change in price will have no impact on quantity demanded)

36

When does a perfectly elastic demand curve occur?

If PeD is infinity
(Any change in price will see quantity demanded fall to 0)

37

4 factors affecting PeD

Substitutability
Time
Necessity/luxury
% of income spent on the product

38

What is substitutability

The more(less) close substitutes a product has the more price (in)elastic it’s demand will be

39

How is total revenue affected by price and PeD

TR⬆️ if price⬇️ and PeD is elastic
TR⬇️ if price⬆️ and PeD is elastic
TR⬇️ if price⬇️ and PeD is inelastic
TR⬆️ if price⬆️ and PeD is inelastic

40

How does time affect elasticity

In the short run PeD for many products will be price inelastic because customers cannot easily change to a different provider

41

How does necessity/ luxury affect elasticity

Inelastic PeD but mainly explained by the lack of substitutes for them

42

How does % of income spent of the product affect elasticity

If something is cheap a big % price increase may not affect demand too much

43

Why do we use elasticity?

Helps us make accurate predictions about how change to one factor will affect another factor eg. Price and demand

44

Define income elasticity of demand (YeD)

Measures the responsiveness of demand for products to changes in the levels of disposable income in an economy

45

How do you work out income elasticity of demand?

% change in quantity demanded/%change in income

46

What does it mean if YeD is less than 1

Demand is income inelastic- not sensitive to changes in income

47

What does it mean if YeD is greater than 1

Demand is no one elastic