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Economics > 3.1.3-How prices are determined > Flashcards

3.1.3-How prices are determined Flashcards

1
Q

What is a contraction in demand?

A

A movement along the demand curve to the left (lower price and lower quantity demanded).

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2
Q

What is demand?

A

A consumer’s willingness and ability to pay a price for a specific good or service

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3
Q

What is the demand curve?

A

A graph that shows the different quanties of a product demanded at different price levels

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4
Q

What is disposable income?

A

The money available after paying taxes that you choose how to use

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5
Q

What is effective demand?

A

The financial ability to actually purchase the product

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6
Q

What are indirect taxes?

A

Taxation on spending (VAT, excise duties, import taxes)

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7
Q

What is individual demand?

A

The amount a single person would be willing to buy at a range of prices

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8
Q

What is infrastructure?

A

Basic systems governments need to make economic activity possible

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9
Q

What is an inverse relationship?

A

When one variable goes up the other variable goes down and vice versa

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10
Q

What is market demand?

A

The total demand for a product

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11
Q

What is a movement in the demand curve?

A

When a change in price causes a new point on the existing curve

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12
Q

What is a shift in the demand curve?

A

When an increase of a non-price variable moves the entire curve to a new location

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13
Q

What is a contraction in supply?

A

A movement along the supply curve to the left (higher price and lower quantity supplied)

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14
Q

What is a proportionate relationship?

A

When one variable goes up the other goes up as well and vice versa

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15
Q

What is supply?

A

The number of goods/services firms are able and willing to supply at a range of prices

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16
Q

What is the supply curve?

A

A graph that shows the different quantities of a product supplied different price levels

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17
Q

What does volatile mean?

A

Changing quickly or suddenly

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18
Q

What is equilibrium price?

A

The point at which quantity demanded and quantities supplied are equal

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19
Q

What is excess demand?

A

Where quantity demanded for a good or service exceeds supply, resulting in shortages and higher prices

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20
Q

What is excess supply?

A

Where quantity supplied of a good or service exceeds demand resulting in excess and lower prices

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21
Q

What is an extension in demand?

A

A movement along the demand curve to the right (higher price and higher quantity demanded)

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22
Q

What is an extension in supply?

A

A movement along the supply curve to the right (lower price and higher quantity supplied)

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23
Q

What is the market clearing price?

A

The price at which the amount supplied matches the exact amount demanded

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24
Q

What are complementary goods?

A

Goods that are purchased to support/go with another product

25
Q

What are inferior goods?

A

Goods that consumers demand less of as incomes increase due to them opting to buy higher quality alternatives

26
Q

What are normal goods?

A

Goods for which demand will increase if incomes increase or fall if incomes fall

27
Q

What are substitutes?

A

Goods or services that can be used to replace one another

28
Q

What is elasticity?

A

The responsiveness of quantity supplied or demanded in relation to changes in price/income/other products

29
Q

What is perfect elasticity?

A

Where quantity demanded is extremely sensitive to changes in price.

30
Q

What is price elastic demand?

A

When the PED is greater than 1 and quantity demanded is very responsive to changes in price

31
Q

What is price elasticity of demand (PED)?

A

The responsiveness in quantity demanded to a change in price

32
Q

What is price inelastic demand?

A

Where PED is less than 1 and quantity demanded is not very responsive to a change in price

33
Q

What is a FMCG?

A

A fast-moving consumer good-goods that sell very fast and in large quantities

34
Q

What is price elastic supply?

A

When PES is greater than 1 and quantity supplied is very responsive to changes in price

35
Q

What is price elasticity of supply (PES)?

A

The responsiveness in quantity supplied to a change in price

36
Q

What is price inelastic supply?

A

When PES is less than one and quantity supplied is not very responsive to changes in price

37
Q

What are raw materials?

A

Substances used to make other things

38
Q

What factors would cause a rightward shift in the demand curve? [7]

A
  • An increase in the price of a substitute good
  • A fall in the price of a complimentary good
  • An increase in personal disposable income
  • A reduction in interest rates
  • A successful advertising campaign
  • An increase in population size
  • The product becoming tasteful or fashionable
39
Q

What factos would cause a leftward shift in the demand curve? [7]

A
  • A decrease in the price of a substitute good
  • An increase in the price of a complimentary good
  • A decrease in personal disposable income
  • An increase in interest rates
  • Lack of advertisement
  • A decrease in population size
  • Tastes and fashion shifting away from the product
40
Q

What factors would cause a rightward shift in the supply curve? [7]

A
  • Lowered costs of production
  • New technology
  • Decreased taxes
  • Increased subsidies
  • Improved weather
  • Prices of complimentary goods increasing
  • More firms in an industry
41
Q

What factors would cause a leftward shift in the supply curve? [7]

A
  • Increased costs of production
  • Lack of technology
  • Increased taxes
  • Decreased subsidies
  • Worsened weather
  • Prices of complimentary goods decreasing
  • Number of firms in the industry decreasing
42
Q

What would an increase in demand and supply result in?

A
  • Increase in quantity
  • Similar price
43
Q

What would a decrease in demand and supply result in?

A
  • Decrease in quantity
  • Similar price
44
Q

What would an increase in demand and decrease in supply result in?

A
  • Similar quantity
  • Increase in price
45
Q

What would a decrease in demand and an increase in supply result in?

A
  • Similar quanity
  • Decrease in price
46
Q

How do you demonstrate revenue on a demand and supply diagram?

A

By drawing a rectangle with the height of it being price and its width being quantity-the area is revenue

47
Q

What is the formula for price elasticity of demand?

A

%change in quantity demanded/%change in price

48
Q

How do you calculate percentage change?

A

((New data-Old data) / Old data) x 100

49
Q

What factors increase the price elasticity of demand?

A
  • If it has many substitutes (undifferentiated)
  • If it accounts for a small percentage of an individual’s income
  • If it is a luxury
50
Q

What factors decrease the price elasticity of demand?

A
  • If it hasn’t got many substitutes
  • If it accounts for a large percentage of an individual’s income
  • If it is a necessity
  • If it is habit-forming/addictive
51
Q

What does an inelastic demand/supply curve look like?

A

Steep

52
Q

What does an elastic demand/supply curve look like?

A

Flat

53
Q

What should producers do if the demand of a good is inelastic?

A

Raise prices

54
Q

What should producers do if the demand of a good is elastic?

A

Lower prices

55
Q

What is the formula for price elasticicy of supply?

A

%change in quantitied supplied/%change in price

56
Q

What is unitary demand/supply?

A

Where the demand or supply of a product is neither elastic nor inelastic (has a price elasticity of -1 or 1)

57
Q

What factors increase the price elasticity of supply?

A
  • A large supply of stocks
  • Lots of spare production capacity
  • If it is easy to switch between alternate methods of production
58
Q

What factors decrease the price elasticity of supply?

A
  • Limited supply of stocks
  • Lack of spare production capacity
  • Unease of switching to alternate methods of production

Economics (13 decks)

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