16- Microeconomics Flashcards
What are the 2 reasons why the demand curve is downward sloping?
-The Income effect
-The law of diminishing returns
What is the formula for Price Elasticity of Demand (PED)?
PED = %ΔQ/%ΔP
For what PED ranges is a good elastic/inelastic?
> 1 elastic
<1 inelastic
What is cross elasticity of demand (XPED)?
The responsiveness of the demand for a good to a change in the price of a substitute or complement
What is the cross elasticity of demand formula (XPED)?
XPED = %ΔQ/%ΔPrice of substitute/complement
For what XPED ranges is a good a substitute/complement?
-Positive for a substitute
-Negative for a complement
What is Income elasticity of demand (YED)?
Responsiveness of the demand for a good or service to a change in income
What is the formula for Income elasticity of demand (YED)?
YED = %ΔQ/%ΔY
For what YED ranges is a good normal/inferior?
-Positive for a normal good
-Negative for an inferior good
What is the short-run and long-run in the production process?
In the short-run at least one production factor is fixed, whereas all can be varied in long-run
At what point is average total cost (ATC) minimised?
ATC is minimised at its intersection with MC curve, ATC=MC
What is Minimum Efficient Scale (MES)?
The level of production at which long-run average total costs (LRATC) are minimised
What are the 4 main features of perfect competition?
-Many firms selling identical products to many buyers
-No barriers to entry/exit
-Established firms have no advantage over new firms
-Perfect information
What are the 3 main features of a monopoly?
-Single firm sells unique products to many buyers
-Strong barriers to entry/exit
-Established firms have a big advantage over new firms
What is Monopolistic competition?
A competitive market where there is some scope for differentiation between products
What is an Oligopoly?
The sector is dominated by relatively few independent producers and there are significant barriers to entry
What is Price discrimination?
When a firm can charge different prices to different customers
What are Porter’s 5 forces?
-Bargaining power of suppliers
-Bargaining power of customers
-Threat of new entrants
-Threat of new substitutes
-Rivalry between competitors
What are the 5 stages of a product life cycle?
Introduction>Growth>Maturity>Decline>Obsolescence
