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Economics > Unit 2 End Of Year > Flashcards

Unit 2 End Of Year Flashcards

(60 cards)

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1
Q

Demand

A

The quantity of a good or service that consumers are willing able to buy at a given price over a period of time

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2
Q

Law of demand

A

As price of a good increases, quantity demanded decreases

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3
Q

A change in price leads to…

A

Movement along the curve

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4
Q

Changes in non price factor e.g. income or tastes cause…

A

Cause shift of the curve

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5
Q

Non price determinants of demand (cause shift in demand)

A
  • income (normal vs inferior goods)
  • tastes/preferences
  • price of substitutes and compliments
  • expectation of future prices
  • number of buyers
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6
Q

Normal goods

A

Demand increases when income increases e.g. laptops, organic food

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7
Q

Inferior goods

A

Demand decreases when income increases e.g. instant noodles, used clothes

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8
Q

Supply

A

The quantity of a good or service that producers are willing and able to sell at a give price over a period of time

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9
Q

Law of supply

A

As the price of a good increases, the quantity supplied increases

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10
Q

Ceteris paribus

A

A fundamental assumption used when analysing economic relationships, means all other things being equal

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11
Q

Non price determinants of supply

A
  • cost of production
  • technology
  • taxes and subsidies
  • price expectations
  • number of sellers
  • supply shocks (e.g. war, natural disasters)
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12
Q

Market equilibrium

A

Where demand is equal to supply, where there’s no excess or surplus

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13
Q

Excess supply

A

Where quantity supplied is greater than quantity demanded at a given price, price is above equilibrium

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14
Q

Excess demand

A

Where quantity demanded is greater then quantity supplied at a given price, where price is below equilibrium

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15
Q

Surplus

A

When quantity supplied is greater than quantity demanded at a particular price

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16
Q

Indirect taxes - defention and reasons for it

A

A tax imposed on the sale of goods/services (e.g. VAT)

  • increased government revenue
  • reduce consumption of demerit goods
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17
Q

Ad valorem tax

A

A tax calculated as a percentage of the price of value of a good or service

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18
Q

Merit goods

A

Good/service tht provides social benefits, but individuals often under consumer it

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19
Q

Demerit good

A

A good/service whose consumption is considered socially undesirable due to negative effects it has on consumers or society as a whole

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20
Q

Subsidy - defention and reasons for it

A

A payment by government to reduce costs and encourage consumption/production

  • to encourage merit goods
  • to support industries
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21
Q

Price ceiling - defention and effects

A

Set below equilibrium to make goods affordable (e.g. rent controls)

  • leads to a shortage of supply
  • can increase black market activity
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22
Q

Price floor - defention and effects

A

Set above equilibrium to protect producers (e.g. minimum wage)

  • leads to a surplus (too much supply)
  • gov may by the excess supply or set production limitations (quotas)
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23
Q

Market failure

A

When the free market fails to allocate resources efficiently (Where MSB is not equal to or greater than MSC)

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24
Q

Externalities

A

Costs or benefits to third parties not reflected in market prices

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25
Negative externality of production example
Factory pollution
26
Negative externality of consumption example
Smoking, alcohol
27
Positive externalities of production examples
R and D, training employees
28
Positive externalities of consumption examples
Vaccines, education
29
Public goods - defenition and effects
Non rivalrous (one’s consumption doesn’t reduce availability for others) and non excludable goods (e.g. street lights, national defense) - leads to free rider problem - if not in place, the free market would underprovide so gov provision is needed
30
Allocative efficiency
Occurs when MC equals AR (or price), meaning resources are allocated to produce the goods most desired by consumers
31
Diminishing returns
A stage in production where adding more units of variable input (like labour) to fixed inputs causes the marginal product of the variable input to decrease E.g. too many employees
32
Economies of scale
Cost advantages a firm gains as it increases output, leading to decrease in average costs due to factors like bulk buying
33
Diseconomies of scale
When a firm grows too large, average costs increase due to problems like management inefficiencies or communication difficulties
34
Accounting profit
The net income or revenue for a firm minus explicit costs
35
Economic profit
Total revenue - total costs
36
Implicit costs
The opportunity costs of using resources owned by the firm, for which no direct payment is made (e.g. owners time or capital)
37
Explicit costs
Direct, out of pocket payments by a firm to purchase inputs (e.g. wages, rent, materials)
38
Price elasticity of demand (PED)
Measures responsiveness of quantity demanded to a change in price % Change in demand / % Change in price > 1 : elastic < 1 : inelastic = 1 : Unit elastic = 0 : perfectly inelastic Infinite : perfectly elastic
39
Determinants of PED
- availability of substitutes - necessity vs luxury (depends on product) - time taken for consumers to respond to price, different in SR vs LR - proportion of income (if it takes up a large prootion of income, tends to be more elastic) - product type - branding
40
Price elasticity of supply (PES)
Measures responsiveness of quantity supplied to a change in price % Change in quantity supplied / % change in price
41
Determinants of PES
- time (time taken to adjust supply) - mobility of factors of production (how easy resources can be moved from making one good to another) - amount of spare capacity - inventory levels
42
Income elasticity of demand (YED)
Measure how quantity demanded responds to a change in income % Change in quantity demanded / % change in income > 0 : Normal good < 0 : Inferior good > 1 : luxury good (income elastic) 0-1 : necessity (income elastic)
43
Perfect competition features
A market structure with these features: - Many small firms, identical products (homogenous) - no barriers to entry or exit - firms are price takers - social welfare is maximised - allocative efficiency (P=MC=AR) - productive efficiency (MC=ATC) SR : firms can earn supernormal profit LR : only normal profit is possible
44
Supernormal / abnormal profit
Profits earned by a firm above the level necessary to cover all costs, including opportunity cost of the resources used
45
Normal profit
The minimum level of profit a business needs to remain in operation in the long run
46
Social welfare
Overall well-being of society, focusing on the satisfaction of individuals needs and distribution of resources
47
Monopoly features and problems
A market structure with these features: - one dominant firm (price maker) - high barriers to entry - no close substitutes Problems: - underproduction (P>MC) - deadweight loss - don’t minimise costs as there’s no competitive pressure, no efficient operation as a result means no innovation, wasteful spending, too many staff etc
48
Welfare loss / Dead weight loss
The lost welfare (loss of consumer + producer surplus) due to underproduction
49
Monopolistic competition
Market structure with the following features: - Many firms, differentiated products - some price control for firms - low barriers to entry SR : can earn abnormal profit LR : normal profit (new firms enter)
50
Oligopoly
Market structure with the following features: - few large firms, high interdependence - high barriers to entry - non price competition (e.g. branding) - May collude (when firms work together instead of competing, often illegal) - Kink demand curve (if one firm lowers price, others follow, if one raise prices others don’t)
51
Income elastic demand
A change in income results in a greater change in demand
52
Income inelastic demand
A change in income results in a proportionally smaller change in demand
53
Market supply
Total supply brought to the market by producers at each price
54
Joint supply
Where an increase or decrease in the supply of one good leads to an increase or decrease in the supply of a by-product.
55
Disequilibrium
Prices where demand and supply are out of balance
56
Consumer surplus
Measures welfare consumers gain from consumption of goods and services. It’s the difference between the total amount that consumers are willing and able to pay for a good or service and the total amount they actually pay. E.g. your willing to pay 10£ for coffee, only payed 4£, consumer surplus is 6£ The area above the market price and below demand curve
57
Producer surplus
The difference between the price the producer receives and the minimum amount they would’ve accepted to produce the good Area below market price and above supply curve
58
Community / total surplus
Consumer surplus + producer surplus
59
Market power
Ability of a firm to raise the price of a good or service above marginal cost by restricting output
60
Concentration ratio
Total sales revenue of dominant firms / Total market sales revenue X 100

Economics (11 decks)

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