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Micro Economics > 4.1.3 Price Determination In A Competitive Market > Flashcards

4.1.3 Price Determination In A Competitive Market Flashcards

1
Q

Demand

A

The quantity of a good or service that consumers are willing and able to buy at a given price during a given period of time

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2
Q

What causes expansions and contractions on the demand curve?

A

Changes in price

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3
Q

What factors shift the demand curve?

A 
Population
Income 
Related goods
Advertisements
Trends
Expectations
Seasons
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4
Q

What is the law of diminishing marginal utility?

A

As an extra unit of a good is consumed, the marginal utility, ie the benefit derived from consuming the good goes down. Therefore consumers are willing to pay less for the good

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5
Q

Rationing function

A

Rising prices due to a shortage means that less will be consumed e.g high price of diamonds

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6
Q

Signalling function

A

Prices signal what is available, conveying information to producers and consumers

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7
Q

Derived demand

A

Goods that are demanded because they are needed for the production of other goods e.g bricks for buildings

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8
Q

Composite demand

A

A good that is demanded for at least 2 distinct purposes e.g sugar cane for ethanol and food

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9
Q

Inferior goods

A

When Income increases, demand goes down the

YED<0

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10
Q

Price elasticity of demand

A

% change in quantity demanded/%change in price

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11
Q

When is PED >1

A

When the good is price elastic

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12
Q

When is PED=1?

A

When the good Is Unitary elastic

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13
Q

When is PED=0?

A

When the good is Perfectly inelastic

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14
Q

When is PED=infinity?

A

When the good is Perfectly elastic

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15
Q

What factors influence PED?

A 
Necessity
Substitutes
Addictiveness
Proportion of income spent on good
Durability of good
Peak and off peak demand
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16
Q

What curve do taxes shift?

A

The supply curve

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17
Q

How do subsidies affect supply curve?

A

Outward shift in supply

18
Q

Income elasticity of demand

A

% change in quantity demanded/% change in income

19
Q

Normal good

A

When I come increases demand increases

YED>0

20
Q

Luxury goods

A

Increase in income causes large increase in demand

YED>1

21
Q

Cross elasticity of demand

A

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

22
Q

What is the XED of complementary goods?

A

Negative XED because If one good becomes more expensive the quantity demanded for both decreases

23
Q

What is the XED of close compliments

A

A small fall in the price of good x leads to a large increase of quantity demanded of y

Small negative value

24
Q

What is the XED for weak compliments

A

A large fall in the price of good x leads to only a small increase in QD of y

Large negative value

25
Q

XED for substitutes

A

Positive XED

26
Q

Supply

A

The quantity of a good or service that a producer is able and willing to supply at s given price and given time period

27
Q

What shifts the supply curve?

A 
Productivity 
Indirect taxes
Number of firms
Technology
Subsidies 
Weather 
Costs of production
28
Q

What causes movements along the supply curve?

A

Change in price

29
Q

Veblen goods

A

Goods sold on the basis that they cost more than their competitors e.g supreme

30
Q

Joint supply

A

When the production of one good leads to the production of another good e.g increase in beef=increase in leather

31
Q

Price elastic of supply

A

% change in quantity supplied/%change in price

32
Q

When is PES>1

A

When supply is elastic

33
Q

When is PES<1

A

When supply is inelastic

34
Q

When is PES=0

A

Perfectly inelastic, supply is fixed

35
Q

When is PES=infinity

A

Perfectly elastic, any Q can be met without changing the price

36
Q

Factors influencing PES

A 
Time scale 
Spare capacity 
Level of stocks 
How substitutable factors are
Barriers to entry to the market
37
Q

Joint demand

A

When goods are bought together such as a digital camera and a memory card

38
Q

When is PED<1

A

When the good is relatively inelastic

39
Q

When is there excess supply?

A

When price is above equilibrium

40
Q

When is the excess demand

A

When price is below equilibrium

Micro Economics (6 decks)

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