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Economics - Both Years > (1) Chapter 2 - Price Determination in a Competitive Market > Flashcards

(1) Chapter 2 - Price Determination in a Competitive Market Flashcards

1
Q

What is a COMPETITIVE MARKET?

A

A market where a large number of buyers and sellers possess good market information + can easily enter and leave

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2
Q

What is EQUILIBRIUM PRICE?

A

A price where demand exactly equals planned supply

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3
Q

What is SUPPLY?

A

Quantity of a good/service that a firm is willing and able to sell at a given price

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4
Q

What is DEMAND?

A

Quantity of a good/service that a consumer is willing and able to buy at a given price

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5
Q

What is EFFECTIVE DEMAND?

A

The desire for a good/service backed by the ability to pay

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6
Q

What does an INCREASE IN DEMAND show?

A

A rightward/upward of the demand curve

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7
Q

What does a DECREASE IN DEMAND show?

A

A leftward/downward shift in the demand curve

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8
Q

What is a NORMAL GOOD?

A

A good where the demand mimics the fall/rise of income

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9
Q

What is an INFERIOR GOOD?

A

A good where if income rises, demand falls.
If income falls the demand increase.
Eg Tesco Value products

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10
Q

What is meant by ELASTICITY?

A

The proportionate responsiveness of a second variable from the change in the first variable

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11
Q

What is meant by PRICE ELASTICITY OF DEMAND?

A

How much the demand for a good changes in response to a change in price

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12
Q

How do you calculate PRICE ELASTICITY OF DEMAND?

A

Price elasticity of demand =

Percentage change in quantity demanded /
Percentage change in price

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13
Q

How do you calculate INCOME ELASTICITY OF DEMAND?

A

Income elasticity of demand =

Percentage change in quantity demanded /
Percentage change in income

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14
Q

How do you calculate CROSS-ELASTICITY OF DEMAND?

A

Percentage change in quantity of A demanded /

Percentage change in price of B

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15
Q

What does PERFECTLY ELASTIC DEMAND look like?

A

A straight horizontal line

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16
Q

What does COMPLETELY INELASTIC DEMAND look like?

A

A straight vertical line

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17
Q

What type of ELASTICITY will a good have if there are close substitutes available?

A

The demand for the product is highly elastic

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18
Q

What factors determine PRICE ELASTICITY OF DEMAND?

A
  • Substitutability
  • Percentage of income
  • Necessities or luxuries
  • The ‘width’ of the market definition
    (The wider the market, the lower the price elasticity of demand)
  • Time
19
Q

What is meant by INCOME ELASTICITY OF DEMAND?

A

How demand responds to a change in income

20
Q

Question!
Peoples average income fall from £1000 to £600. As a result, demand for potatoes increase from 1m tonnes to 1.2m tonnes.
Calculate the income elasticity of demand for potatoes.

A

20% / -40%
= -0.5
The minus sign indicates that it is an inferior good. The number 0.5 shows that the demand is inelastic

21
Q

What is meant by CROSS-ELASTICITY OF DEMAND?

A

The extent to which the demand for a good changes in response to a change in the price of another good

22
Q

What are the three possibilities of CROSS-ELASTICITY OF DEMAND?

A
  • Complementary goods
  • Substitutes
  • An absence of any discernible demand relationship
23
Q

What is meant by PROFIT?

A

The difference between total sales revenue and total cost of production

24
Q

What is meant by TOTAL REVENUE?

A

The money a firm receives from selling its output

25
Q

What are the main CONDITIONS OF SUPPLY?

A
  • Cost of production
  • Technical progress
  • Taxes
  • Subsidies granted
26
Q

What does an INCREASE in supply look like?

A

A rightward of the supply curve

27
Q

What does a DECREASE in supply look like?

A

A leftward shift of the supply curve

28
Q

What is meant by PRICE ELASTICITY OF SUPPLY?

A

The extent to which the supply of a good changes in response to the change of price

29
Q

What is excess supply?

A

When a firm wish to sell more than consumers wish to buy

30
Q

What is excess demand?

A

When consumers wish to buy more than firms would like to sell

31
Q

What is joint supply?

A

When two different goods can be produced using the same material

32
Q

What is competing supply?

A

When two goods require the exact same material to be made so they can’t both use the same material

33
Q

What is complementary goods?

A

Where different goods are demanded at the same time as each other

34
Q

What is a substitute good?

A

Different goods where they could easily be replacements for each other

35
Q

What is composite demand?

A

Demand for a good which has more than one use

36
Q

What is derived demand?

A

Demand for a good which is an input for the production of another good

37
Q

What is allocative efficiency?

A

When the available economic resources are used to produce the combination of goods/services that match the people’s preferences

38
Q

What is productive efficiency?

A

When the economy cannot produce more of one good without producing less of another

39
Q

What is a merit good?

A

A good which when consumed leads to benefits for the people

40
Q

What is the elasticity if PED = 0

A

Perfectly Inelastic

41
Q

What is the elasticity if PED 0 < PED < 1

A

Inelastic

42
Q

What is the elasticity if PED = 1

A

Unit Elastic

43
Q

What is the elasticity if 1 < PED

A

Elastic

44
Q

What is the elasticity if PED is infinite

A

Perfectly Elastic

Economics - Both Years (13 decks)

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