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
