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Y1 ECON > 1.2 demand and supply > Flashcards

1.2 demand and supply Flashcards

1
Q

what is utility?

A

satisfaction

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2
Q

what do consumers seek to maximise?

A

utility

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3
Q

what do firms seek to maximise?

A

profit

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4
Q

what is irrational behaviour?

A

where actions do not maximise utility

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5
Q

explain 3 reasons why agents may behave irrationally

A

habit
inertia
influenced by others

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6
Q

what is bounded rationality?

A

rationality within constraints (eg of time, information, computational skill, using rules of thumb)

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7
Q

what is demand?

A

the amount of a good or service customers are willing to
buy at a given price (over a given time period)

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8
Q

why are demand curves downward sloping?

A

law of diminishing marginal utility
income effect
substitution effect

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9
Q

what could cause an extension in demand?

A

an outward shift in supply

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10
Q

what could cause a contraction in demand?

A

an inwards shift in supply

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11
Q

give the conditions (shifters) of demand

A

population
advertising
substitutes
income
fashion and trends
intrest rates
complements

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12
Q

what is the law of diminishing marginal utility?

A

as more of a good is consumed, each additional unit provides less additional satisfaction

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13
Q

what is supply?

A

the quantity firms are willing and able to sell at a given price (over a given period of time)

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14
Q

why are supply curves upward sloping?

A

law of diminishing marginal returns
profit motive
attracting new entrants

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15
Q

what could cause an extension in supply?

A

outward shift in demand

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16
Q

what could cause a contraction in supply?

A

inward shift in demand

17
Q

give the conditions (shifters) of supply

A

productivitiy
indirect tax
number of firms (competition)
technology
subsidies
weather
cost of production
regulations

18
Q

what is equilibrium price?

A

the price at which D=S

19
Q

what is equilibrium quantity?

A

the quantity at which D=S

20
Q

what is a shortage?

A

where demand is greater than supply

21
Q

referring to extension and contraction, explain how shortages are resolved

A

price rises, supply expands and
demand contracts

22
Q

what is a surplus?

A

where supply is greater than
demand

23
Q

referring to extension and contraction, explain how surpluses are resolved

A

price falls, supply contracts and
demand expands

24
Q

explain the functions of the price mechanism

A

incentive
rationing
signalling
allocative

25
Q

what is consumer surplus?

A

the difference between what a consumer is willing to pay and the price they actually pay

26
Q

what is producer surplus?

A

the difference between the price the market is willing to supply at and what they actually supply at

27
Q

what is total economic welfare?

A

consumer surplus + producer surplus

Y1 ECON (13 decks)

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