the price system and the micro economy Flashcards
demand and supply curves, price elasticity, income elasticity, and cross elasticity of demand, price elasticity of supply, the interaction of demand and supply, consumer and producer surplus (70 cards)
What is Effective Demand?
The quantity of a good or service an individual is willing and able to purchase over a range of prices over a period of time.
Effective demand must be backed up with the ability to pay for it.
How does Effective Demand differ from Desire for a Product?
Effective Demand requires the ability to pay, whereas Desire does not.
For example, wanting a Ferrari without the financial means does not constitute effective demand.
What does the Law of Demand state?
For most goods and services, the quantity demanded is inversely proportional to its price.
What is a Demand Curve?
A curve showing the relationship between the quantity of products individuals are willing and able to buy over a range of prices over a period of time.
What does Ceteris Paribus mean in demand analysis?
All other factors affecting demand are held constant.
What is Market Demand?
The total demand for a particular product in the market.
How is Market Demand calculated?
By adding together the quantity demanded of each individual at any given price.
What is Supply?
The quantity of a good a producer is willing and able to offer for sale over a range of prices, over a given period of time.
What does the Law of Supply state?
For most goods and services, the quantity supplied is directly proportional to its price.
What happens to Quantity Supplied when Price Rises?
Quantity Supplied Rises.
What is a Supply Curve?
A curve showing the relationship between the quantity of a product producers are willing and able to offer for sale over a range of prices, over a period of time.
What is the difference between a Movement Along the Curve and a Shift in the Curve?
Movement Along Curve refers to contractions or extensions, while Shift in Curve refers to changes in the whole curve due to changes in determinants.
What are the Determinants of Demand?
- Income
- Price of Other Goods
- Tastes & Preferences
- Speculation
- Size, Age, Gender or Population
- Distribution of Income
What is a Normal Good?
A good whose demand rises as income rises, and falls as income falls.
What is an Inferior Good?
A good whose demand falls as income rises, and rises as income falls.
What is the relationship between Substitutes?
Goods that are alternatives to one another; they can replace each other.
What are Complements?
Goods that are consumed together.
How does Advertising influence demand?
It can affect individuals’ tastes and preferences, thus influencing the demand for a product.
What is Speculation in economic terms?
Buying products hoping their price will rise, allowing profit when reselling.
What are the Determinants of Supply?
- Costs of Production
- Availability of Resources
- Climate
- Technology
- Government Regulation
- Taxes & Subsidies
What happens to Supply when Costs of Production rise?
The Supply curve should fall.
What effect does Government Regulation have on Supply?
High regulation typically leads to a fall in the supply curve due to increased production costs.
What is Price Elasticity of Demand?
It measures the responsiveness of a change in demand to a change in price.
What does a PED greater than 1 indicate?
Demand is price elastic, meaning the change in price leads to a bigger change in demand.
