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economics- micro > 1.3 Price Determination > Flashcards

1.3 Price Determination Flashcards

1
Q

What is a demand curve?

A

A curve showing the amount of a good consumers are willing and able to buy at each and every price level

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2
Q

What are products that act as an alternative for consumers

A

A substitute

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3
Q

What are things that are often bought together called

A

Complements

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4
Q

What does ceteris paribus mean?

A

all other factors remain the same

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5
Q

What are the determinants of demand

A

The price of the good, consumer income, prices of other goods and services, consumer tastes and fashion and other factors like advertising

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6
Q

What is a normal good?

A

one where if price rises, demand will fall

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7
Q

What is a Veblen good?

A

When price increases of a luxury goods, demand increases

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8
Q

What is an inferior good?

A

One where demand decreases as incomes increase

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9
Q

What is a Giffen good?

A

When cheap stable foods are consumed in greater quantity when their price rises

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10
Q

What causes a demand curve to shift to the right

A

An increase in demand

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11
Q

What causes a shift to the left of a demand curve

A

A decrease in demand

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12
Q

What are the determinants of supply

A

The price of a good

The impact of changing costs of production

Technological progress

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13
Q

Prices of other goods and services

A

Government policy

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14
Q

What is market equilibrium

A

The point at which demand is equal to supply

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15
Q

If prices rise how does that affect demand and supply

A

A rise in price will lead to excess supply as demand will fall

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16
Q

If prices fall what effect does that have on demand and supply

A

An excess demand will be caused as there should be an increase in demand leading to a higher demand then supply

17
Q

What do market forces do

A

Market forces always push prices towards market equilibrium

18
Q

What do complements have(cross Elasticity of demand)

A

They have a negative cross elasticity of demand

19
Q

What do substitutes have(cross elasticity of demand)

A

Substitutes have a positive cross elasticity of demand

20
Q

What is composite demand

A

An increase in demand for one good or service will restrict its availability for another use

21
Q

What is derived demand

A

A result of demand for another good or service

22
Q

What is joint supply

A

When the production of a product creates a by-product that can also be supplied

23
Q

What is PED

A

The responsiveness of demand to a change in price

24
Q

What is the formula for PED

A

%Change in demand/ %change in price

25
Q

What is PED determined by

A

Substitutes, time, market width, luxury or necessity, percentage of income

26
Q

What is YED

A

A measures of the responsiveness of demand to a change in income

27
Q

What is the formula for YED

A

%change in demand/% change in income

28
Q

What is YED determined by

A

Necessity or luxury, level of income of consumer

29
Q

What is XED

A

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

30
Q

What is the formula for XED

A

%change in quantity demanded of good x/ % change in price of good x

31
Q

What is XED determined by

A

Whether the goods are substitutes, compliments or have no relationship

32
Q

What is PES

A

A measure of the responsiveness of supply to a change in price

33
Q

What is the formula for PES

A

%Change in quantity supplied/%Change in price

34
Q

What are the determinants of PES

A

Price, Availability of substitutes, Spare production capacity is available, stocks, time frame, artificial limits on supply

35
Q

What are the functions of price

A

Signalling, incentives and rationing

36
Q

What is the incentives function

A

Profit incentive to increase supply

37
Q

What is the rationing fucntion

A

Higher prices will tell consumers not to buy

38
Q

What is the signalling function

A

Price and Quantity signals to consumers and producers

economics- micro (2 decks)

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