Flashcards in Unit 2 Deck (32):
what is price equilibrium?
at the equilibrium price demand and supply are in balance
what is the market clearing price?
another way of saying price equilibrium and can be illustrated by demand and supply curve
what is a market graph?
the curves are most useful when used together. this is more realistic and shows how consumers and producers want different things but at one point only they will agree: Qd = Qs. It is called market equilibrium or the market clearing price - no surplus and no shortage
what is bidding up the price?
when there is a shortage, consumers in the necessary means will offer to pay more in order to get the g/s. This will increase the price until an equilibrium is found
what the effect of a subsidy on a graph?
Supply will increase and move to the right but the move is measured vertically using the price scale
what is price elasticity of demand?
price elasticity of demand measures the responsiveness of demand to price changes
how is PED/S calculated?
PeD = change%QD/S
a % change is
change / original price X 100
how is inelastic shown on a graph and what does it mean?
its vertical and will only buy at the one price or lower
how is elastic shown on a graph and what does it mean?
its horizontal and will buy at any price
how does the slope of the demand curve show PED?
elastic - luxury items, takes a high % of our income, many substitutes
inelastic - necessities, addictive, where there are no substitutes, low % of our income
what does PeD mean?
less than 1 = inelastic
equal to 1 = unitary
more than 1 = elastic
what happens to demand when its elastic?
an increase in price will increase TR and a price increase will decrease TR
what happens to demand when its inelastic?
a decrease in price will decrease TR and a price increase will increase TR
what is price elasticity of supply?
PeS measures the responsiveness of supply to changes in price
what are a few different ways for buyers and sellers to communicate?
on the phone
what is a market?
a market is a place or situation, where buyers and sellers communicate in order to make an exchange that satisfies both buyers and sellers
what does the government do in the market?
creates rule for how the market can operate; make some products and provides some services; buy and sell; tax and spend
what do the businesses do in the market?
make products and services; buy and sell
what do consumers do in the market?
what are the different types of market?
local e.g. farmers market
national e.g. royal mail
international e.g. Zara
what is market failure?
g/s that are over produced and under priced encourage consumption. likewise g/s considered to be merit g/s may be overpriced and under consumed. in both cases the market has failed to deliver g/s at the right price or at the right quantity
what are private costs?
monetary obligations any business owner must pay in order to pay e.g. stock, wages
what are private benefits?
these are the monetary rewards that come to the owner from training e.g. sales revenue
what are externalities?
these are the untended spill over benefits or costs that fall on a 3rd party outside the direct trading relationship. these can be negative or positive but must be taken into account when a business starts trading
what are social costs?
private costs + external costs = social costs
what are social benefits?
private benefits + external benefits = social benefits
what happens if social costs are greater than benefits or the other way round?
if social costs are greater than the social benefits then the firm should stop trading
if social benefits are greater than the social costs then the firm should go ahead
what are the types of conflict?
conflicts arise between private and social interests
another conflict is between whether the use of resources should be decided by the private expenditure or whether the government should make more of spending decisions
what is natural capital?
in the form of lakes, rivers, clean air and other gifts of nature
what is man made capital?
in the form of roads, bridges, factories and offices
what is social capital?
in the form of relationship between members of society such as family and community