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Economics > 2.2 How Markets Work > Flashcards

2.2 How Markets Work Flashcards

1
Q

What is Demand?

A

The want and willingness of consumers to buy a good or services at a given price

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2
Q

What is effective demand

A

Effective demand is where the willingness to buy is backed by the ability to pay

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3
Q

What does the law of demand state?

A

An increase in price leads to a decrease in demand, and a decrease in price leads to an increase in demand

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4
Q

What is extension in demand?

A

The increase in demand due to changes in price (without changes in other factors)

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5
Q

What is contraction in demand?

A

The decrease in demand due to the changes in price (without the changes in other factors)

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6
Q

What causes a shift to the right on a demand curve?

A

A rise in the demand for a product due to the changes in other factors (excluding price)

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7
Q

What causes a shift to the left on a demand curve?

A

A fall in demand for a product due to the changes in other factors (excluding price)

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8
Q

What are the factors that cause shifts in demand curve?

A 
Consumer Incomes
Taxes on incomes
Price of substitutes
Price of complements
Changes in consumer tastes and fashion
Degree of Advertising
Change in population
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9
Q

What are Substitutes?

A

Goods that can be used instead of a particular product.

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10
Q

What are Complements?

A

Goods that are used along with another product

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11
Q

What is Supply?

A

The want and willingness of producers to supply a good or services at a given price

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12
Q

What is quantity supplied?

A

The amount of goods or services producers are willing to make and supply

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13
Q

What does the law of supply state?

A

An increase in price leads to a increase in supply, and a decrease in price leads to an decrease in supply.

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14
Q

What is Extension in Supply?

A

The increase in supply due to changes in price (without changes in other factors)

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15
Q

What is Contraction in Supply?

A

The decrease in supply due to the changes in price (without the changes in other factors)

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16
Q

What causes a shift to the right on a supply curve?

A

A rise in the supply for a product due to the changes in other factors (excluding price)

17
Q

What causes a shift to the left on a supply curve?

A

A fall in the supply for a product due to the changes in other factors (excluding price)

18
Q

What are the factors that cause shifts in Supply Curves?

A

Changes in cost of production
Changes in the quantity of resources available
Technological changes
The profitability of other products

19
Q

What is the Equilibrium Price?

A

The price at which the demand and supply curves meet

20
Q

What is the Disequilibrium Price?

A

The price at which market demand and supply curves do not meet

21
Q

When is Surplus Experienced?

A

When the price is above the equilibrium price

22
Q

When is Shortage Experienced?

A

When the price is below the equilibrium price

23
Q

What is Price Elasticity of Demand(PED)?

A

The responsiveness of the quantity demanded for it to changes in it’s price.

24
Q

What is the PED formula?

A

% change in quantity demanded / % change in price

25
Q

What is Price Elastic Demand?

A

When a change in price makes a higher change in quantity demanded

26
Q

What is Price Inelastic Demand?

A

When a change in price makes a smaller change in demand.

27
Q

What is Unitary Price Elastic Demand?

A

When the % change in demand and price are equal

28
Q

What is Infinitely Price Elastic Demand?

A

When the quantity demanded changes without any changes in price itself

29
Q

What happens when elasticity reaches zero?(Perfectly Price Inelastic Demand)

A

The price changes have no effect on demand whatsoever

30
Q

What affects PED?

A

No. of substitutes
Time period
Proportion of Income spend on commodity

31
Q

How is PED helpful to producers?

A

Producers can calculate the PED of their product and take a suitable action to make the product more profitable.

32
Q

What is Price Elasticity of Supply(PES)?

A

The responsiveness of the quantity supplied it to changes in it’s price

33
Q

What is the PES formula?

A

%change in quantity supplied / %change in price

34
Q

What affects PES?

A

Time of Production

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Economics (19 decks)

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