topic 3: markets Flashcards

Question

what is a contraction in the supply curve

Answer 1

when there is a decrease in the price of i.e shoes causing a contraction in supply(downward movement)

Answer 2

cost of inputs, or more firms entering an industry

Answer 3

there has been a decrease in supply (there are two observations concerning price and quantity) 1. a decrease in supply means firms will supply a given quantity of goods at a higher price this is represented by the vertical distance between the curves, where quantity hasn't changed but price has 2. a decrease in supply means firms will decrease the quantity of goods at a given price level this is represented by the horizontal distance between the curves, where quantity has changed but price hasn't

Answer 4

there has been an increase in supply (there are two observations arising concerning price and quantity) 1. an increase in supply in supply means firms are able to increase the amount of i.e shoes supplied to the market at the same price this is represented by the horizontal distance between the curves, where the price hasn't changed but the quantity has 2. an increase in supply means firms are able to supply a given quantity of goods for a lower price this is represented by the vertical distance between the curves, where quantity hasn't changed but price has showing increases in supply and decreases in price go hand in hand

Answer 5

is where quantity supplied and quantity demanded are the same, represented as the intersection between demand and supply curve

Answer 6

the combined forces of supply and demand

Answer 7

market failure refers to how the free market only factors in private costs/benefits but fails to consider social ones because of prorperty rights which allows someone to own a resource and determine how it is used theres no property rights on the environment there for damage such as the carbon emissions, overfishing, deforestation leads to overuse can also happen with -overproduction when a firm produces too much of a harmful good or service i.e over production of cigarettes --> public health declining --> cancer -under production when firms produce too little of a beneficial goods or service i.e lack of investment into certain areas for research such as environmental conservation

Answer 8

is the graph that includes both private and social costs

Answer 9

the overuse and depletion of common resources

Answer 10

private costs and benefits -costs and benefits directly related to the consumer and producer only i.e firm costs are factors of production and cost of service, private benefit revenue cost for consumer is the price paid for the good or service and the benefit utility gained(happiness) social costs and benifits -costs and benifits for the whole of society -includes private benifits also include external costs and benifits private costs + externalities = social costs

Answer 11

to solve basic economic questions such as what/how much to produce

Answer 12

private costs + externalities = social costs or benefits external to a private(consumer/firm) considerations when buying i.e. externalities are borne by the entirety of society whereas its the individual that is borne with private costs and benefits

Answer 13

costs or benifits

Answer 14

social benifits > private benifits i.e musuems (underproduced) called merits

Answer 15

social benifits/costs < private benefits/costs i.e oil industry (over produced)

Answer 16

businesses won't produce them key features 1.non rival (they don't have rivals) i.e street lamp 2. no excludable i.e street lamp

Answer 17

which is the situation where the government intervenes with the market to regulate the quantity produced of a good or service in order to better address the externalities that are ignored by private costs and benifits

Answer 18

social benefits purchasing attached to the consumption of goods are not considered when purchasing which provides a broader social merit i.g museums, libarys

Answer 19

goods that firms won't produce as they cannot exclude people unwilling to pay i.e military, highways, parks

Answer 20

a maximum price for a good or service is established below the market equilibrium -aims to help buyers what is the disadvantage of a price ceiling it leads to disequilibrium as we have a shortage

Answer 21

the minimum price that can be charged for wheat market disequilibrium because quantity supplied > quantity demanded surplus in the i.e wheat farm, which is not an efficient allocation of resources

Answer 22

it measures the responsiveness of the quantity demanded to a change in price

Answer 23

proportionate change in quantity < proportionate change in price

Answer 24

when the quantity demanded is relatively responsive to the price change i.e change in car wash price proportionate change in quantity > proportionate to the change in price = elastic demand

Answer 25

proportionate change in quantity = proportionate change in price (1% change in price causes a 1% change in demand) pretty rare(pretty much impossible)

Answer 26

because businesses need to understand price elasticity to decide on the optimal pricing strategies i.e paper towel business decrease price --> increased sales elastic demand meaning prices are cheaper but demand increases another example is medicine increase in price --> small decrease in sales increased prices = increased revenue

Answer 27

through market research of tastes and preferences

Answer 28

goods people can't live without i.e medicine price increases so does revenue

Answer 29

goods people don't necessarily need i.e paper towels as the price increases you can switch to another product price increases --> revenue decreases

Answer 30

so they can tax on tobacco and alcohol how will tax impact behaviour --> to predict the amount of revenue and plan for the future doing so they can charge the right for the right good i.e. excise duty for petrol to raise money (petrol is a inelastic good) increased price won't affect demand much

Answer 31

it looks at the effect of changes in price on the revenue earned by the business total outlay -= price of good x quantity demanded at the price

Answer 32

if price and revenue move in the same direction then its price is inelastic if price and revenue are opposite in movement then its price elastic if a price increases and the revenue stays the same than it means its unit elastic

Answer 33

if the slope is steeper it means its relatively price inelastic(i.e health services and bread) while if the slope is more flat than its relatively elastic demand (i.e carwash and foxtel)

Answer 34

consumers will only consume a particular good or service at a particular price only a horizontal graph -IF PRICE DEVIATES THAN THERE WILL BE NO DEMAND I.E apple farmers

Answer 35

consumers are willing to pay for any price in order to obtain a given quantity the demand curve is vertical -no matter how high or low the price the demand stays the same i.e hypothetically a consumer with a life threatening disease willing to purchase the drug for any amount

Answer 36

NEPT N-necessities and luxuries -have relatively inelastic demand i.e. food and water E-existence of close substitutes -close substitutes tend to have highly elastic demand i.e one brand of one cereal increase(still get the same utility) P-proportion of income cheaper items = more inelastic i.e toothbrushes with an increase of $1 expensive items = more elastic i.e. car with an increase of $1000 T-the length of time since a price change -if the price increases, it may take time to identify substitutes -if the price decreases, it may take time to realise the change i.e dry cleaning, if prices increases it make time time to find a new place when you are still with the cleaning business its inelastic hwoever if you find a substitute you can change meaning then its elastic demand

Answer 37

measures the responsiveness of the quantity supplied to a change in price when there is a change in the price of a good or service, price elasticity looks at what business choose to do in response i.e clothing business that specializes on manual labour of clothes, if the price increase it woudn't be hard to expand supply is price elastic --> quanitity supplied is strongly affected by the increased price i.e local boutique hotel limited amount of rooms and guests(difficult to expand) supply is price inelastic --> rise in quantity supplied is small compared to increase in price if quantity supplied rises in proportion to the price increase, supply is unit elastic

Answer 38

(only at one price) is the situation where producers will supply the good at one price, and the quantity depends on the demand i.e the price for a computer stays at a certain price however quantity changes from demand a horizontal line i.e meat pie costs $2 to make even if its makes a million more, in this economy consumers can buy as many meat pies without the price changing however they can't offer a lower price as they will lose money

Answer 39

producers will supply a given quantity, regardless of the price of the market vertical line i.e van gogh paintings, there are only 100 paintings, the quantity is fixed --> price changes quantity is fixed

Answer 40

1. time lags -sometimes a changing quantity supplied won't happen instantly after a price change as it will take a little bit of time before a business can change the output in response (how long will this take)(faster they change their output = more elastic) i.e wheat takes months of previous planning because of this even if the price fails, they couldn't decrease their output fast time lag is inelastic in the short-term 2.the ability to hold and store stock -when prices fall, producers rather wait for the price to go up again instead of selling for a lower price(fruit and vegetable unable to hold for long therefore inelastic)(known as perishable goods) i.e inelastic phone -elastic furniture 3. Excess capacity -if the business has existing infrastructure, labour or capital that isn't being used and waiting to be utilised than supply will be elastic in response to a price increase because the business does not have to aquire more inpurts for production time lag and excess capacity -is about how quaickly a business can decrease or increase output ability to hold stock -can the business hold goods already produced

Answer 41

an infinite number of identical firms consumers can buy from. Hard to raise prices above market equilibrium due to competition key features 1. -all products in the same industry are the same -consumers incur no cost from switching suppliers 2. -no barriers for new businesses entering the market -no barriers for existing businesses leaving the market 3. -businesses can sell as much as they like at the market price called price takers i.e agriculture like wheat

Answer 42

this is a situation where a large number of relatively small firms compete in a market with similar yet non-identical products i.e. restaurants, tutoring companies 1. product differentiation presenting goods in a unique/different way i.e shoe market, different types of shoes 2.have a degree of market power over the price because they produce different goods i.e nike with shoes 3.few barriers for new firms entering market, loyalty limits extending customer base i.e loyalty to a shoe company

Answer 43

much less firm (2-5) and lots of market power 1. lots of market power -large share of the market i.e apple and microsoft 2.large barriers for entry -firms are big and invest in logistics/efficiency 3. one firm's influence decisions can influence another -can 'collude' to keep prices high

Answer 44

one business has almost complete control over the price 1. complete control over price and quantity 2.no substitutes 3.significant barriers to entry i.e water supply, which is hard for a company to set up where another exists leading to profit maximisation

Answer 45

the influence a business has on price and quantity

topic 3: markets Flashcards

(71 cards)