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MicroEconomics > 1.2 Whiteboard Tasks > Flashcards

1.2 Whiteboard Tasks Flashcards

1
Q

Define Utility

A

The level of satisfaction gained from consuming a good or service

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2
Q

Define rational decision-making (Consumers and Firms)

A

Consuming goods and services that maximize your utility.
Firms acting rationally will aim to maximize their profits.

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3
Q

What is diminishing marginal utility

A

The satisfaction from finishing a meal wont be as satisfactory after 2 or 3 times. Your enjoyment will decrease the more of the same meal you eat

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4
Q

What does diminishing marginal utility look like on a graph?

A

Utility will initially be high but as we consume more of that good or service it will fall. On a diagram the Utility will be on the y axis and the quantity will be on the x axis and the line will be from the top of the y axis to the right side of the quantity line

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5
Q

What does a demand curve look like when you draw it?

A

Price=Y axis
Quantity=X axis
and the line will be downward sloping

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6
Q

The higher the price what happens to quantity demanded?

A

The lower the quantity demanded as the more expensive something is the less amount of customers willing to pay for it.

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7
Q

What are the 7 factors that can lead to a change in demand?

A
  1. Changes in prices of substitutes and complementary goods.
  2. Changes in consumer incomes.
  3. Fashion, tastes and preferences.
  4. Advertising and Branding.
  5. Demographics
  6. External Shocks
  7. Seasonality
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8
Q

What does an increase in demand look like on a graph?

A

If demand increases, the demand curve shifts to the right

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9
Q

What does a decrease in demand look like on a graph?

A

If demand decreases, the demand curve shifts to the left

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10
Q

What is the difference between a complimentary good and a substitute good?

A

Substitutes are alternative products and compliments are bundled products

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11
Q

What would the impact on demand if the price of a substitute product increases?

A

Demand shifts to the right as if substitute product increases it means that a normal good is either cheaper or more worth it as not much of a difference in price of substitute

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12
Q

What would the impact on demand be if the price of a complimentary product increases?

A

Demand will decrease as if the complement good increases in price it means that its more expensive to buy the bundle

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13
Q

Formula for PED?

A

% change in Q/ % change in P

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14
Q

What’s the formula for Percentage Change?

A

((New - Old)/Old) x100

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15
Q

What’s the formula for YED?

A

% change of Q/ % change of income (y)

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16
Q

What are Normal goods?

A

More essential goods that we buy regurarly

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17
Q

What are Luxury goods?

A

Expensive goods that we will not consider unless our income improves

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18
Q

What are inferior goods?

A

Budget brands are replaced with premium brands when income rises

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19
Q

What is XED?

A

A measure of the responsiveness of the demand for one product to a change in the price of another product

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20
Q

What’s the formula of XED?

A

% change of Q of Good A/ % change of P of Good B

21
Q

If XED is positive what type of good is it?

A

If price and demand of an alternative good go up then they are substitute goods.

22
Q

If XED is negative what type of good is it?

A

If price of alternative goods goes up and QD goes down then they are Complimentary goods.

23
Q

What does a supply curve look like on a graph?

A

Price= y axis
Quantity= x axis
So supply goes from where y and x axis join up and goes diagonal

24
Q

What are the 5 factors that can lead to a change in supply?

A
  1. Changes in cost of production.
    2.Introduction of new technology.
    3.Indirect Taxes.
  2. Government Subsidies
  3. External Shocks
25
Q

What’s the difference between an Indirect Tax and a subsidy?

A

Indirect Tax like VAT decreases supply of demerit goods.
Grant/Subsidy increases supply of merit goods.

26
Q

What’s the impact on supply if an indirect tax is placed on a product?

A

Supply will be decreased and shift to the left

27
Q

What’s the impact on supply if a subsidy is given to a firm?

A

Supply shifts to the right as supply increases as firm has more money

28
Q

What is Price Elasticity of Supply (PES)?

A

Measures the responsiveness of Quantity supplied to a change in price

29
Q

What’s the equation for Price Elasticity of Supply?

A

%change of QS / % change of p

30
Q

What does an elastic supply curve look like?

A

Will be more horizontal to show the increased change in Q

31
Q

What does an inelastic supply curve look like?

A

Will be more vertical to show the decreased change in Q

32
Q

What are the factors that can affect the PES?

A

-Time it take to increase output when price increases
-Level of stock available
-Spare capacity available
-Ability to switch resources

33
Q

What does Market Equilibrium look like on a graph?

A

This is where supply and demand meet and supply and demand are in balance

34
Q

What does excess supply look like on a graph?

A

The points will be above the point of equilibrium as the price will be too high which means the excess supply

35
Q

What does excess demand look like on a graph?

A

The points will be below the point of equilibrium as the price will be too low and so supply will all be gone and shelves will be empty

36
Q

What are the three functions of the price mechanism

A

-Signaling
-Rationing
-Incentives

37
Q

What is Price Mechanism?

A

System where the prices of goods and services are determined by the forces of demand and supply

38
Q

What is Price Signaling?

A

Increased price signals to producers to reallocate resources. Increased price signals= more demand for a good or service and so they should produce more.

39
Q

What is Price Rationing?

A

When there is excess demand and so the price of goods and services rise. This prices out certain consumers.

40
Q

What are price incentives?

A

Increasing price encourages producers and consumers to change their behavior. Firms increase their supply in the hope of more profit. Consumers reduce consumption or switch to cheaper substitute goods.

41
Q

What is consumer surplus?

A

Economic measurement of consumer benefits resulting from market competition.

42
Q

What is producer surplus?

A

Measure of producer welfare or benefit from selling a good at the market price.

43
Q

Where is Producer and consumer surplus on a graph?

A

Consumer surplus is above p1 and below demand and producer surplus is below p1 and above supply.

44
Q

What is the difference between a merit and demerit good?

A

A merit good is a good or service that is healthy or socially desirable and has a positive effect on a consumer. These goods are under-consumed.
A Demerit good is goods and services that are unhealthy or socially undesirable and they have negative effects on the consumer. They are over-consumed.

45
Q

What is the difference between specific tax and an ad valorem tax?

A

A specific tax is a fixed amount placed on a good.
An ad valorem tax is a percentage placed on a good.

46
Q

What do a specific tax and an ad valorem tax look like on a graph?

A

A specific tax is a normal supply and demand graph but with supply shifting left.
An ad valorem tax on a normal supply and demand graph is where supply shifts to the left but is skewed.

47
Q

What do subsidies do?

A

Decrease the cost of production for a firm and they are used to increase the production/consumption of Merit goods. Supply shifts to the right.

48
Q

What are the three forms of irrational decision making?

A

-Copying other people (Herding)
-Buying the same thing you did last time (Habitual)
-Picking an option and hoping for the best (Computation Weakness)

MicroEconomics (8 decks)

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