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Microeconomics (theme 1) miss Lovvet. > 1.2 Types of markets > Flashcards

1.2 Types of markets Flashcards

1
Q

What is the assumed objective of consumers?

A

Consumers act to maximise utility.

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2
Q

What is the assumed objective for firms?

A

Firms act to maximise profit.

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3
Q

What is the assumed objective for governments?

A

Governments act to improve economic and social welfare.

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4
Q

What is demand?

A

The amount of a product that will be bought at a given price level.

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5
Q

How can demand be presented?

What does it show?

A

Demand can be presented as a demand curve.

Demand curve can show the amount of a product that will be bought at a given price.

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6
Q

What is the law associated with demand?

A

Law of demand: price and demand are inversely proportional.

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7
Q

What is the market demand curve?

A

The market demand curve is the summation of all the individual demand curves.

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8
Q

What happens if there is a change in price?

What are the two scenarios?

A

If there is a change in price there is a movement along the demand curve.
A price increase will cause a contraction.
A price decrease will cause an extension.

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9
Q

What happens if there is a change in demand?

A

If there is an increase in demand the demand curve will shift to the right.
If there is a decrease in demand the demand curve will shift to the left.

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10
Q

What can cause a shift to the left?

A
  • Recession
  • Sugar tax
  • bad publicity
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11
Q

What factors impact demand?

why are these important

A

-income
-tastes and preferences
-times and seasons
-prices of other goods
when answering an exam question on demand you must use these.

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12
Q

What is diminishing marginal utility?

A

Situation where an individual gains less additional utility from consuming a product the more it is consumed.

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13
Q

How do you calculate a percentage change?

A

New-Old/old

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14
Q

What are elasticities?

A

Used to look at the sensitivity of changes in one variable to changes in the other.

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15
Q 
What is (PED)?
What is the definition?
A

Price elasticity of demand.

A measure of the sensitivity of the quantity demanded to a change in price of a good or service.

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16
Q

What is the formula for (PED)

A

percentage change in quantity demanded/ percentage change in price. x 100

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17
Q

What does the (PED) of 0 show? (also why is this)

A

Perfectly inelastic. (As there is no change in quantity demanded).

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18
Q

What does (PED) between 0 and -1 show?

A

Relatively inelastic.

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19
Q

what does (PED) of -1 show

A

unitary elastic.

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20
Q

What does (PED) between -1 and -infinity show?

A

Relatively elastic.

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21
Q

What does a (PED) of -infinity show?

A

perfectly elastic.

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22
Q

What does it mean if someone is price elastic and someone is price inelastic?

A

Price elastic- quantity demanded falls as price increases.

Price inelastic-quantity demanded does not change with higher prices.

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23
Q

Draw the curve of perfectly inelastic?

A

Perfect I shape

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24
Q

Draw the curve of perfectly elastic?

A

Perfect —– shape

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25
Q

Draw the curve of relatively inelastic?

A

steep gradient but not vertical line.

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26
Q

Draw the curve of relatively elastic?

A

Small gradient but not a horizontal line.

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27
Q

What is the curve of unitary elasticity?

A

positive reciprocal only in positive quadrant.

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28
Q

When is demand elastic and what part of the demand curve is this?

A

Demand is elastic when price is relatively high (at the start of the demand curve)

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29
Q

When is demand inelastic and what part of the demand curve is this?

A

Demand is inelastic when price is relatively low (at the bottom of the demand curve)

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30
Q

With a price (ELASTIC) product what is the impact of a rise and fall In price to revenue.

A

If the price of a elastic product increases revenue will decrease.
If the price of an elastic product decreases revenue will increase.

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31
Q

With a price (INELASTIC) product what Is the impact of a rise and fall in the price to revenue.

A

If the price of an inelastic product increases revenue will increase.

If the price of an inelastic product decreases revenue will decrease.

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32
Q

What is the way to remember each factor affecting elasticity? what is each factor?

A

PANT

Proportion of income spent on that product.
Availability of substitutes.
Necessity or luxury.
Time.

33
Q

What is YED?
What is the formula?
What does it measure?

A

1-Income elasticities of demand.

2-Percentage change in demand/ percentage change income.

3- It measures the responsiveness of demand to a change in income.

34
Q

What is the difference between income elastic and income inelastic?

A

Income elastic- a change in income will lead to a big change in demand.

Income inelastic- a change in income will lead to a small change in demand.

35
Q

How to differentiate between an INFERIOR, NORMAL or LUXURY and NECESSITY.

A

Inferior- YED good is negative
Normal - YED is positive
Luxury YED> 1
NECCESITY- Has YED between 0 and 1.

36
Q

1-What is XED?

2-What is the formula?

A

Cross price elasticities of demand.

% change in quantity demanded of good A/ % change in pricegood B

37
Q

What is the value of a substitute and complement good?

A

Substitute good is positive XED.

Complement good is negative XED.

38
Q

1.2.4 What is the definition of supply?

A

The quantity a producer is willing and able to supply onto the market at a given price, at a given time.

39
Q

1.2.4 What is the supply curve?

A

Shows how much a producer would be willing to sell at each and every price.

40
Q

1.2.4 What is the relationship between supply and price?

A

Supply is high when price is high

Supply low when price is low

41
Q

1.2.4 What are the features of a supply curve and draw one?

A

Quantity supplied on x axis.
Quantity demanded on y axis.
Upward sloping curve.

42
Q

1.2.4 What are the different changes to a supply curve?

A

A change in price causes a movement along the supply curve. An increase in price causes a extension in supply and a decrease in price causes a contraction in supply.

43
Q

1.2.4 What is market supply?

A

Total supply brought to the market by producers at each price. The sum of all individual supply schedules.

44
Q

1.2.4 What are the factors that can cause a shift in supply?

A
  • Changes in the unit costs of production
  • Entry of a new producer
  • Taxes subsidies and government regulation
45
Q

1.2.4 What does an outward and inward shift actually mean on a supply curve?

A

An outward shift means more can be supplied at each price level.
An inward shift means less can be supplied at each price level.

46
Q

1.2.4 What is joint supply?

What is an example of this?

A

Is where the increase or decrease in supply of one product causes an increase or decrease in supply of a byproduct.
An expansion in the supply of lambs will cause an expansion in supply of wool.

47
Q

1.2.5 What is PES

what is the formula?

A

Price elasticity of supply.

% change in quantity supplied/ % change in price.

48
Q

1.2.5 What does PES measure

A

The responsiveness of quantity supplied to a changes in its price.

49
Q

1.2.5 What is a PES value of 0

A

Perfectly supply inelastic.

50
Q

1.2.5 What is a PES value between 0 and 1

A

Supply inelastic

51
Q

1.2.5 what is a PES of 1

A

unitary supply elastic.

52
Q

1.2.5 what is a PES of 1 to infinity

A

supply elastic.

53
Q

What is a unitary supply curve

A

y=x through the origin.

54
Q

What is an inelastic supply curve

A

steep line nearly vertical

55
Q

What Is an elastic supply curve

A

Very shallow curve.

56
Q

What is the way to remember the factors affecting PES?

What are these factors

A

AAST
Availability of producer substitutes- how early the producer can switch to producing something else.
Availability of stocks- if a product can be easily stores “eg tinned peaches” can respond to demand easily.
Time- over short term harder to change supply
Spare capacity- If a producer has spare capacity easier to increase production.

57
Q

What is the short run and long run?

A

Short run- When at least one factor of production is fixed .

Long run- When all factors of production are variable.

58
Q

How would a tax on the consumer impact elastic and inelastic curves?

A

The more elastic the curve the less incidence of the tax is on the consumer.

If supply is elastic there will be a lower change in price.
If supply is inelastic there will be a higher change in price.

59
Q

When demand is elastic and inelastic who is the tax passed onto?

A

When demand is elastic the tax is passed onto the producer.

When demand is inelastic the tax is passed onto the consumer.

60
Q

What effect does a shift on a steep supply and demand curve have. (Inelastic).

What effect does a shift on a shallow supply and demand (elastic).

A

On an inelastic supply and demand curve the impact will be small on quantity and high in price. (with most burden on the consumer).

On elastic supply and demand curve the impact will be high on quantity and small on price. (with most burden falling on the consumer).

61
Q

What are the factors that affect demand?

A

Income
Tastes and preferences
Advertising

62
Q

What are the factors that impact elasticity of demand?

A

Proportion of income spent.
Availability of producer substitutes.
Necessity of luxury.
Time.

63
Q

Factors affecting supply?

A 
Weather/Natural disasters.
Costs of production.
Advances in technology.
availability of producer substitutes.
New producers entering the market.
64
Q

Factors affecting price elasticity of supply

A

Spare capacity
Taxes and subsidies
Time.

65
Q

What is equilibrium?

A

A steady state, where quantity supplied= quantity demanded and there is no reason to change.

Price and quantity as this is the only combination where the market clears.

66
Q

What is equilibrium?

A

A steady state, where quantity supplied= quantity demanded and there is no reason to change.

Price and quantity as this is the only combination where the market clears.

67
Q

How is excess demand shown on a curve?

A

When supply and demand are below equilibrium then there is excess demand that is the gap.

68
Q

How is excess supply shown on a curve?

A

The gap above the market equilibrium level so prices will fall until it gets back to market clearing.

69
Q

How is equilibrium is disturbed?

A

When the factors of demand or supply change it will disturb market equilibrium.

70
Q

How to draw a supply and demand curve that shows a shift?

How would you show excess supply or demand

A

Draw the original supply and demand curves with p and q labelled

Give your graph a title.

keep the price at the original level

71
Q

What are the different functions of the price mechanism.

A

To allocate resources.
: Rationing
; Signalling
; incentives

72
Q

What is rationing function?

What shift?

A

Prices serve to ration scarce resources when there is excess demand.

When there is a shortage of a product, price will rise to deter consumers from buying the product.

Left shift

73
Q

What is the incentive function?

movement

A

(in terms of the supplier)
Changes in price provides incentives for producers to increase or decrease production.

No movement just moves up.

74
Q

What is the signalling function?

A

Changes in price provides information to both producers and consumers about changes in market conditions.

75
Q

What is incentive function?

A

Changes in price provides incentives to producers to increase or decrease production.

76
Q

What is consumer surplus?

What is it a measure of?

A

The difference between the price a consumer Is willing to pay compared to what the consumer actually pays.

It is a measure of the welfare people gain from goods and services.

77
Q

What is a producer surplus?

How can it be shown on a graph?

A

Producer surplus is a measure of producer welfare. It is measured as the difference between what producers are willing and able to supply a good for and the price they actually receive.

It can be shown by the area above the supply curve and below the prevailing market price.

78
Q

What are indirect taxes and what impact do they have on the supply curve?

A

Indirect taxes are a tax on expenditure.

They increase the cost of supply so It shifts to the left.

79
Q

What are the two types of taxes?

what shift do they cause

A

Ad valorem- these are a percentage of the price or a good or service eg VAT. (will cause a skewed shift)

Specific tax- set amount of tax per unit (parallel shift)

Microeconomics (theme 1) miss Lovvet. (15 decks)

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