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Business, Finance, Technology > 11: Economics > Flashcards

11: Economics Flashcards

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1
Q

What is the market, and market mechanism?

A

Market - where buyers and sellers come together for the purpose of exchange

Mechanism - interaction of supply and demand for a particular item

SUPPLY and DEMAND

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2
Q

What is the principle of the demand curve?

A

Quantity demanded goes up as price falls!

  • goods are more affordable
  • lower prices makes goods more attractive
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3
Q

What is the principle of the supply curve?

A

The quantity supplied goes up as price increases

  • existing suppliers produce more
  • new suppliers switch to making the product
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4
Q

What are the 8 things that determine demand?

A

Price of the good itself

Price of other goods

Substitutes

Complements

National income

Fashion

Population size

Credit terms

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5
Q

What would cause the demand curve to shift to the right?

A

increase in demand

increase in household income

increase in the price of substitutes

decrease in the price of complements

good becoming more fashionable

expectation that the price of the good will be higher in the next period

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6
Q

What would cause the demand curve to shift to the left?

A

Less demand!

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7
Q

How to calculate percentage change

A

New number - old number (to get the difference)

Divide by the old number

Times by 100

/    |
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8
Q

What is price elasticity of demand and how is it calculated?

A

The degree to which demand is effected by the change in selling price

% change Demand / % change Price

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9
Q

What is the criteria for elastic or inelastic?

A

Inelastic < 1
Elastic > 1

Perfectly inelastic 0
Perfectly elastic infinity!
Unitary elasticity 1

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10
Q

What 5 factors affect the PED?

A

Substitues

Time

Competitors pricing

Nature of the product

Proportion of income accounted for by good

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11
Q

What are characteristics of inelastics and elastic products?

A

Inelastic - increasing the price will increase the total revenue

Elastic - increasing the price will cut the total revenue

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12
Q

What are Giffen and Veblen goods?

A

Both types have upward-sloping demand curves and positive elasticity

Giffen goods - people buy more of the thing as the price increases

Veblen goods - bought to show off, so a higher price makes them more desirable

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13
Q

What is income elasticity of demand and how is it calculated?

A

The degree to which demand is affected by changes in household income. YED

% change demand / % change household income

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14
Q

What is the criteria for income elasticity?

A

> 1 - luxury goods
0 - normal goods
< 0 - inferior goods

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15
Q

What is cross elasticity of demand and how is it calculated?

A

How the demand is affected by changes in price of other products

% change demand of product A
——————————
% change of price of product B

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16
Q

What is the criteria for cross elasticity?

A

> 0 substitutes

< 0 complementary goods

= 0 unrelated goods

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17
Q

What is price elasticity of supply and how is it calculated?

A

The degree to which supply is affected by changes in the price

% change supply / % change price

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18
Q

What is the criteria for PES?

A

Vertical line
- perfectly inelastic supply
- supply remains constant at all prices

Horizontal line
- perfectly elastic supply
- supply is infinite at a particular price

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19
Q

What are the 6 things that determine the supply?

A

Price of the good

Price of other goods

Price of joint products

Costs

Changes in technology

Other

20
Q

3 factors that influence elasticity of supply?

A

Market period

Short run - inelastic

Long run - elastic

21
Q

What is the equilibrium price, and how is it achieved?

A

The price at which supply and demand is equal.

The supply and demand curves move until the new equib is found.

If price too high:
- supplier will lower prices to attract more demand

If price is too low:
- supplier will increase prices to reduce the shortage

22
Q

Why would the government set minimum and maximum prices?

A

Maximum - to ensure that goods are affordable

Minimum - to protect suppliers

23
Q

What is the GDP?

A

Amount of expenditure spent on output

Four factors of production:
- land
- labour
- capital
- entrepreneurship

24
Q

What are the four main influences on the national economy?

A

Government

Consumers

Savers

Businesses

25
Q

Four main stages of a business cycle?

A

Recession
- demand falls
- businesses fail
- delation occurs
- production and employment fall
- begins relatively quickly

Depression
- period of full depression

Recovery
- slow to begin
- govs try to boost demand in economy
- recovery will quicken as confidence returns

Boom
- inflation as demand outstrips supply
- businesses are profitable
- future expectations are optimistic!

26
Q

What are the two types of inflation?

A

Cost-push inflation - price rises from an increase of production

Demand-pull inflation - price rises from a persistent excess of demand

Main causes of the latter:

  • fiscal (government spending/taxes)
  • credit (levels of credit for customers increasing)
27
Q

What is monetary policy and what are examples?

A

Government policy on:
- interest rates
- exchange rates
- money supply
- quantitative easing

28
Q

What is fiscal policy and what are examples?

A

Government’s policy on:
- government spending
- taxation
- government borrowing

Fiscal stance can be
- expansionary
- contractionary
- neutral

29
Q

What is supply-side policies and what are examples?

A

Policies designed to encourage suppliers to produce more goods at lower prices

  • involvement in private sector
  • reduction in taxes
  • increasing flexibility
  • improving education and training
  • increasing competition
  • abolition of exchange controls
30
Q

What is market structure and the four types of market?

A

Description of the number of buyers and sellers in a market

And their relative bargaining power

  • perfect competiton
  • monopolistic competition
  • ogliopoly
  • monopoly
31
Q

What is ‘perfect competition’?

A

Large number of buyers/sellers

Free entry

Free access

Homogenous products

One selling price

Suppliers make ‘normal’ profits

32
Q

What is ‘monopoly’?

A

One supplier

Many buyers

Barriers that prevent new entrants

Suppliers can fix price

Super-normal profits

Four types: pure, actual, government franchise, natural

33
Q

What is ‘monopolistic competition’?

A

Many buyers and sellers

Some differentiation of products

Some customer loyalty

Few barriers to entry

Freedom to set prices

Only normal profits

34
Q

What is ‘ogliopolies’?

A

Few large suppliers

Differentiation of products

High degree of mutual dependency

Difficult to predict the actions of competitors in terms of pricing

Collusion to form cartels

35
Q

What are the four types of market failure

A

Market imperfections
- not perfect competition

Public goods
- made necessary by public intervention
- no market, allowable to all

Externalities
- private or social costs or benefits from the market, that the markets fail to account for
- negative: social cost is worse than private
- positive: social benefit better than private

Economies of scale
- internal economies: from size of firm
- external economies: from size of industry

36
Q

What’s always a good answer if the question is a trend that you would expect on the demand or supply curve?

A

Normal goods

37
Q

How do complements work?

A

Tend to be consumed together - if demand falls for one, demand falls for both!

38
Q

How do inferior goods work?

A

As income rise, demand for inferior goods will not rise!

39
Q

What are natural monopolies associated with?

A

Low marginal costs

40
Q

The supply curves!!!!!

A

Vertical line: perfectly inelastic

Horizontal line: perfectly elastic

41
Q

What do significant rises in factor costs cause?

A

A contraction in demand and a shift to the left of the supply curve

42
Q

What are indicators of perfect competition?

A

Suppliers earn normal profits

Consumers lack influence over market price

A single selling price

Suppliers are price takers, not price makers

43
Q

What do significant external economies of scale indicate?

A

The market is growing, so enabling the economies of scale to be achieved

44
Q

What is the basic economic problem facing all national economies?

A

Allocating scarce resources

45
Q

The four factors of production?

A

Land
Labour
Capital
Enterprise

46
Q

What is quantitative easing?

A

The central bank buying government debt from the private sector to increase the liquidity in the economy

Business, Finance, Technology (14 decks)

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