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economics micro > 1.2.1 - 1.2.10 > Flashcards

1.2.1 - 1.2.10 Flashcards

1
Q

law of diminishing marginal utility states

A

that for each additional unit of good that’s consumed the marginal utility gained decreases

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2
Q

margin def

A

the change in a variable caused by an increase of one unit of another variable

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3
Q

traditional economic theory assumes

A

that economic agents want to maximise their utility

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4
Q

marginal utility def

A

the benefit gained from consuming one additional unit of good

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5
Q

total utility def

A

the overall benefit gained from consuming a good

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6
Q

markets are

A

wheee goods/services are bought and sold

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7
Q

assumptions of rational economic decision making
cons/prod

A

consumers- aim to maximise utility
producers- aim to maximise profits

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8
Q

demand def

A

is the quantity of a good/service that consumers are willing and able to buy at a given price at a given time

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9
Q

demand curve shows relationship between

A

price and quantity demanded

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10
Q

factors that shift demand

A

population
income
related goods
advertising
trends
expectations
seasons

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11
Q

ped def + formula

A

ped=%change in quantity/%change in price

measures the responsiveness of the change in quantity due to the change in price

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12
Q

YED def + formula

A

YED= %change in quantity/%change in income

measures the responsiveness of the percentage change in quantity demanded to a change in income

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13
Q

xed def + formula

A

XED= %change in quantity demanded of good a/%change in price of good b

measures the responsiveness of the change in quantity demanded of good a due to a change in price of good b

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14
Q

inferior goods/normal goods- if real income increases

A

normal good-demand increases
inferior goods- demand decreases

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15
Q

what happens if more equal distribution of income

A

causes demand curve for luxury goods shifts to the left
fewer rich people

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16
Q

substitute/complementary goods def

A

substitute-alternatives to each other
complementary- goods used together

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17
Q

substitute and complementary demand

A

substitute- increase in price of sub demand increases
complementary- increase in price demands decreases

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18
Q

derived demand
composite demand

A

derived- demand for a good/factor of production used in making another good/service
composite-goods have more than one use

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19
Q

ped elastic and in elastic no + perfectly inelastic

A

elastic 1<PED -1>PED
inelastic -1<PED<1
perfectly inelastic PED =0

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20
Q

substitutes and complements xed

A

substitutes pos xed
complement neg xed

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21
Q

types of goods/services

A

essential items
habit forming
goods that can’t be postponed
products w diff uses

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22
Q

factors that influence ped

A

substitutes (more subs more price elastic)
types of goods/services
% of income spent on good (higher % more price elastic)
time(long run price elastic short run inelastic)

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23
Q

good w elastic demand
decrease price + increase price

A

decrease price- increase firm rev
increase price- decrease firm rev

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24
Q

goods w inelastic demand
decrease/increase price

A

decrease price- decrease firm rev
increase price- increase firm rev

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25
Q

supply def

A

quantity of a good/service that producers supply to the market at a given price at a particular time

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26
Q

supply curve shows

A

the relationship between price and quantity supplied

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27
Q

subsidies + taxes affect on demand + production

A

subsidies encourage demand and production
taxes reduce demand and production

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28
Q

demand for products that need large portion of consumers income is more

A

price elastic

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29
Q

rational consumer will choose to consume a good at point where

A

marginal utility = price

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30
Q

perfectly inelastic

A

any change in price will have no effect on quantity demanded

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31
Q

market is equilibrium when

A

supply = demand

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32
Q

factors that cause shift in supply curve

A

change to cost of productions
improved technology
changes to the productivity of factors of production
indirect taxes and subsidies
changes to the price of other goods
number of suppliers

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33
Q

when supply and demand aren’t equal

A

the market is in disequilibrium

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34
Q

producers
firms profit
why would they max profit

A

total rev- total costs

to survive
greater profit = better reward
reinvest profit to expand

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35
Q

more price inelastic demand the greater the tax burden for
more price elastic demand the greater the tax burden for

A

consumers
producers

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36
Q

PES def + formula

A

PES= %change in quantity supplied/%change in price
measures the responsiveness in a change in quantity supplied due to a change in price

37
Q

why in high pes important to firms

A

firms aim to repost quickly to changes in price and demand
they need to make supply elastic

38
Q

short run pes

A

time period where firms capacity fixed
difficult to increase production in short run so supply is inelastic

39
Q

long run pes

A

factors of production are variable
from able to increase its capacity
supply is more elastic
firms have longer to react to changes in price and demand

40
Q

several other factors that affect pes

A

periods of unemployment-more elastic
perishable goods-have inelastic supply
high stock level-elastic supply able to increase supply
mobile factors of production- more elastic supply

41
Q

market is in equilibrium when

A

supply equals demand

42
Q

excess supply

A

when quantity supplied to a market is greater than the quantity demanded

43
Q

excess demand

A

when the demand for a good or service is greater than its supply

44
Q

elasticity of ped/pes- price inelastic supply or demand shifts in curve has an impact on

A

price

45
Q

elasticity of ped/pes- price inelastic supply or demand shifts in curve has an impact on

A

price

46
Q

elasticity of ped/pes- price elastic supply or demand shifts in curve has an impact on

A

quantity

47
Q

demand and supply models involves several assumptions

A

-supply/demand are independent of each other
-all markets perfectly competitive
-ceteris paribus

48
Q

competitive markets exist under certain conditions

A
  • large no of buyers and sellers
  • no single consumer or producers can influence allocation
  • cons/prod act rationally- cons maximise welfare prod aim to provide cons what they want at lowest possible price to max profits
49
Q

price mechanism follows 3 functions

A

incentive
signalling
rationing

50
Q

explain price mechanisms three functions

A

-incentive to firms: higher prices encourage production of more goods and sales inc profits
-signalling- changes in price shows change in supply/demand as a signal to prod/cons
-rationing- ration resources. high demand means supply limited then price will be high to restrict those who can’t buy

51
Q

price mechanism advantages

A

-resources allocated efficiently to satisfy wants/needs
-operates w out cost of employing people to regulate it
-consumers decide what to produce
-prices kept at their minimum to allocate resources as efficiently as possible

52
Q

disadvantages of price mechanisms

A

-inequality of wealth and income is likely
-overprovison of demerit goods
-people w limited skills suffer unemployment
- public goods not produced

53
Q

consumer surplus definition

A

difference between price that consumers are willing to pay for a goodservice and the price that they actually pay (area below demand curve)

54
Q

producer surplus definition

A

the difference between the price that producers are willing to supply a good at and the price that they actually receive for it (area above supply curve)

55
Q

subsidies do what to demand

A

encourage demand

56
Q

tax do what to demand

A

tax reduce demand

57
Q

the changes in price lead to

A

extension/ contraction in demand

58
Q

subsidies

A

encourage increased production + fall in price + increased demand

59
Q

inelastic demand subsidies affect prod/ cons gain

A

prod gain smaller than consumer gain

60
Q

elastics demand and subsides prod/cons

A

producer gain higher than consumer gain

61
Q

consumer gain

A

they gain by paying less for the good than they would have

62
Q

producer gain

A

they gain by receiving extra revenue from the government that they can keep

63
Q

tax

A

increases price of a good

64
Q

inelastic demand w tax cons prod burden

A

cons burden larger than prod burden

65
Q

elastic demand tax cons prod burden

A

cons burden less than prod burden

66
Q

cons burden

A

they lose out by paying more for the good

67
Q

prod burden

A

they lose out by paying some of the revenue to the government

68
Q

the more price inelastic the demand curve the

A

greater the tax burden for the consumer

69
Q

the more price elastic the demand curve the

A

the greater the tax burden for the producer

70
Q

acting rationally means

A

making decisions that results in the most optimal level of utility or benefit for the consumer

71
Q

what are the reasons for consumers not acting rationally

A
  • influence of other people’s behaviours
  • the importance of habitual behaviour
  • consumer weakness at computation
    -time bilbo’s to make decision is limited
  • not all information available
72
Q

bounded rationality definition

A

limits on decisions - people tend to satisfice ( make a satisfactory decision) rather than spend ages trying to make a rational decision to maximise utility

73
Q

rule of thumb explained

A

choosing the middle priced option when faced with a range of different prices

74
Q

anchoring explained

A

means placing too much emphasis on one piece of information

75
Q

availability bias explained

A

this is where judgments are made about the probability of events occurring based on how easy it is to remember such events occurring

76
Q

social norms explained

A

an individuals behaviours can be influenced by the behaviour of their social group

77
Q

habitual behaviour explained

A

doing the same thing over and over again

78
Q

biases that stop individuals acting in an economically rational way

A
  • rule of thumb
  • anchoring
  • availability bias
  • social norms
  • habitual behaviours
79
Q

asymmetric information prevents rationality how

A

when one party has more information than another

80
Q

price def

A

value at which a good/ service is exchanged

81
Q

the influence of other people’s behaviour

A

social pressure encourages consumers to do things they would not do otherwise. consumers unwilling to change even if it benefits them if it goes against norms of society

82
Q

importance of habitual behaviours

A

consumers no longer have to consciously think about their actions. this limits consumers considering an alternative because they would have to refamilirise themselves

83
Q

perfectly elastic supply

A

any fall in price quantity supplied will be reduced to zero

84
Q

economic sustainability
social sustainability
environmental sustainability

A

-impact of economic choices on economic objectives
- impact of economic choices on society
- impact of economic choices on environment

85
Q

limited resources leads to questions

A

what to produce how to produce it and who to produce it for

86
Q

consumers weakness at computation

A

consumers are unable to exercise self control with some decisions

87
Q

choice architecture definition

A

where an individuals choice is influenced by adapting the way the choice is presented

88
Q

choice architecture done in number of ways

A
  • default options
  • framing
  • nudges
  • restricted choice
  • mandates choices
89
Q

default options
framing
nudges
restricted choice
mandates choice
explained

A

-people may choose default option
-the context in which information is presented influence a decision
-some alternatives are easier to choose without removing freedom of choice
-people’s choices are restricted
-people have to make decisions

economics micro (4 decks)

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