a Flashcards
(31 cards)
Effect of government setting a minimum price above equilibrium price
When a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result. When government laws regulate prices instead of letting market forces determine prices, it is known as price control.
The equilibrium in a goods market
Definition equilibrium
Central role in economics
Situation in which none of the participants has any incentive to change behaviour - everyone is content
Increase in supply will result in a fall in price. Demand remains the same. Prices fall. Firms compete. Quantity demands increase.
What illustrates the concept of unemployment on a production possibility curve?
Unemployment means resources that could be used for production are not being used. And when some resources are not being used for production, the economy does not reach the production possibilities curve–the curve that corresponds to full employment. In particular, unemployment results from any point INSIDE the production possibilities curve.
5 ways the government can deal with surplus that results from imposing a minimum price above the equilibrium in a goods market
- Government can purchase the surplus and export it
- Government can purchase the surplus and store it (if non perishable
- Government introduces production quotas to limit the quantity supplied to the quantity demanded at the minimum price
- Government purchases and destroys surplus
- Producers destroy surplus
Households purchase in the _____ market and sell in the ____ market, while firms purchase in the _____ market and sell in the _____ market. (choose goods and factors for the ___)
goods, factors, goods, factors
Which statement is true about demand
Demand refers to the quality of a good that households plan to buy
Which of the following best describes the effect of an increase in the productivity of (2) available resources on the production possibilities curve?
An outward shift of the production possibilities curve;
Output; Total Cost (TC); Marginal Cost (MC); Average Fixed Cost (AFC); Average; Variable Cost (AVC); Average Total Cost (AC)
(This is meant to look like a table, just don't seem to be able to insert a picture) Output. TC. MC. AFC. AVC. AC 0. 200 1. 265 2. 295 3. 310
The marginal cost of the second unit is?
(a) 265;
(b) 30;
(c) 15;
(d) 295.
Output; Total Cost (TC); Marginal Cost (MC); Average Fixed Cost (AFC); Average; Variable Cost (AVC); Average Total Cost (AC)
(This is meant to look like a table, just don't seem to be able to insert a picture) Output. TC. MC. AFC. AVC. AC 0. 200 1. 265 2. 295 3. 310
The average fixed cost of the second unit is?
(a) 100;
(b) 147.5;
(c) 30;
(d) 95.
Output; Total Cost (TC); Marginal Cost (MC); Average Fixed Cost (AFC); Average; Variable Cost (AVC); Average Total Cost (AC)
(This is meant to look like a table, just don't seem to be able to insert a picture) Output. TC. MC. AFC. AVC. AC 0. 200 1. 265 2. 295 3. 310
The average variable cost of the third unit is?
(a) 66.67;
(b) 103.33;
(c) 36.67;
(d) 15.
Under which market structure does the firm have no control over the price of the (2) product?
(a) Perfect competition;
(b) Monopoly;
(c) Monopolistic competition;
(d) Oligopoly.
Which of the following is NOT a feature of oligopoly?
(a) Collusion is possible;
(b) Firms have considerable control over the price of their products;
(c) Economic profit is possible in the long run;
(d) The demand curve for the firm’s product is horizontal.
Which of the following will NOT shift the market supply of labour?
(a) A change in the size of the population due to a change in birth or death rates;
(b) A change in the labour force participation rate of women;
(c) An increase in the wages that can be earned in another occupation;
(d) A change in the wages of workers.
Which one of the following statements is INCORRECT?
(a) Trade unions act as monopolistic suppliers of labour;
(b) Labour markets are sometimes monopsonistic, meaning there is only one
major employer;
(c) Employers and employees usually have perfect knowledge about the labour market conditions in which they operate;
(d) The labour market is a segmented market.
Farmer Brown is a wine farmer. He has approached you to give him some advice. There is a lot happening in the wine industry and he needs some clarity on how these changes will affect the market for wine. The following changes have occurred simultaneously:
The price of grapes (used in production of wine) has increased.
Research results have recently been published that prove that wine is
healthy and that a glass a day is beneficial.
After you have looked up the correct info - practice this answer piece of paper
Explain, with an aid of a graph, the impact of the changes above, on the equilibrium price and quantity of eggs.
(Note: You do not have to draw a graph for the chicken market. Only draw and explain the graph for the egg market.)
The income elasticity of demand for maize meal is estimated as 0.31. from this we can (2) deduce that:
(a) Maize meal can be regarded as an inferior good;
(b) Maize meal can be regarded as a luxury;
(c) Maize meal can be regarded as a necessity;
(d) A change in the price of maize meal will result in a smaller than proportional change in the quantity demanded.
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Describe the three different categories of price discrimination 9 marks
(HINT Use an example to illustrate each category of price discrimination.)
First-degree or perfect price discrimination, second-degree, and third-degree.
Clearly distinguish between (2 marks):
Average revenue and marginal revenue
A firm’s average revenue is its total revenue earned divided by the total units. A competitive firm’s marginal revenue always equals its average revenue and price. This is because the price remains constant over varying levels of output.
Clearly distinguish between (2 marks):
Implicit costs and explicit costs
An explicit cost is a defined dollar amount that appears in the general ledger. Whereas an implicit cost is not initially shown or reported as a separate cost.
Clearly distinguish between (2 marks):
Ordinal utility and cardinal utility
Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be expressed numerically. Ordinal utility states that the satisfaction which a consumer derives from the consumption of good or service cannot be expressed numerical units.
Clearly distinguish between (2 marks):
Income elasticity of demand and cross elasticity of demand
Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in income. Cross (price) elasticity of demand (XED) measures the responsiveness of quantity demanded for one good to a change in the price of another good.
Clearly distinguish between (2 marks):
The short run and the long run (in production theory)
The Short-Run is the period in which at least one factor of production is considered fixed. Usually, capital is considered constant in the short-run. In the Long-Run, all factors of production are variable, while in the very long-run all factors of production are variable and research and development is possible.
Explain why prices are such an important part of a market economy. (Hint: Include the role (functions) of prices in a market economy.) 5 marks
Why are prices important in a market economy?
Image result for Explain why prices are such an important part of a market economy. (Hint: Include the role (functions) of prices in a market economy.)
The price of goods plays a crucial role in determining an efficient distribution of resources in a market system. Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions. … Rising prices discourage demand, and encourage firms to try and increase supply.
……………
The price of goods plays a crucial role in determining an efficient distribution of resources in a market system.
Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions.
If a good is in shortage – price will tend to rise. Rising prices discourage demand, and encourage firms to try and increase supply.
If a good is in surplus – price will tend to fall. Falling price encourage people to buy, and cause firms to try and cut back on supply.
Prices help to redistribute resources from goods with little demand to goods and services which people value more.
Adam Smith talked about ‘the invisible hand‘ of the market. This ‘invisible hand’ relies on the fluctuation of prices to shift resources to where it is needed.
Define the term “price discrimination” 1 mark
Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets.
