Unit 2 Flashcards
(32 cards)
What is a market?
Voluntary meeting of buyers and sellers.
What is a competitive market?
Large numbers of buyers and sellers that all accept the market price.
What are highly competitive markets lacking?
They lack entry and exit barriers
When is there a movement along a curve?
When the price changes
What is PED?
PED: the responsiveness of demand to a change in price
% change in qd / % change in price
What are the coefficients for PED?
0 - Perfectly inelastic 0<1 Price inelastic 1 Unitary 1>Infinity Price elastic Infinity Perfectly Elastic
What are the determinants of PED?
Substitutes
Time
Definition of the market
What is YED?
Income Elasticity
The responsiveness of demand to a change in income
% change in qd / % change in income
What are the coefficients of YED?
-1+1 = elastic
Determinants of YED?
- Whether good is a necessity or luxury
- Level of income of consumers
What is XED?
Measurement of responsiveness to demand of good x with a change in price of good y
% change of qd of x / % change in price of good y
What are the coefficients of XED?
-1+1 = elastic
What are the determinants of XED?
- Substitutes
- Complement
- Has no relationship
What is market supply?
Just the sum of the supply of all the firms or producers in the market at different market prices
What factors influence supply?
- Price of good
- Impact of changing costs of production
- Technological progress
- Prices of other goods/services
- Government policy
What is marginal cost?
The addition to a firms cost from making an additional unit of output
What are relevant costs?
Those that are used to make decisions on investments
What is the MES
The scale of production where the LRACC is at is lowest point
What is productive efficiency?
Where no additional output can be produced from the factor inputs available at the lowest point on the LRACC
What is the significance of the L shaped ACC?
In a natural monopoly it is believed to always have lowering costs, this suggests that the firm should continue to increase output in order to gain more profit. This creates the high barriers to entry
How to calculate marginal revenue?
change in total revenue / change in output
How to calculate average revenue?
Total revenue / quantity
How to calculate total revenue?
Quantity x Price
What is normal profit?
Minimum profit a firm must must make to stay in business
