Acctg133 Midterms Coverage Flashcards
What is the meaning of the following acronyms?
PSE
PED
PES
IED
CPED
In the same order:
Philippine Stock Exchange
Price Elasticity of demand
Price Elasticity of supply
Income Elasticity of Demand
Cross Price Elasticity of Demand
This is a term relative based on the industry where one is involved in.
Market
How does economics define the word “Market”?
As a place where buyer and sellers meet
Is the quantity of goods and services that buyers are able and willing to buy.
Demand
As price increases what happens to demand?
As price increases, Demand decreases
(Inverse relationship)
What is a
Demand Schedule?
Demand Curve
Its the table cross referencing Price and Demand
Its a (line) graph cross referencing Prince and Demand
Price is Y on a graph, Quantity is X
In price vs QD/QS which is the independent and dependent variable?
Price is always the independent variable
QD/QS is the dependent because it’s the value we want to know.
In a linear regression, Price is always X and QD/QS is Y
What is the law of demand?
As price increases, quantity demanded will decrease ceteris paribus (all factors are constant)
These are goods and services that have an decreasing demand when income increases.
Inferior Goods
What are the other factors affecting demand?
- Income
- Price of related goods and services
- Taste and preferences
- Expectations on future prices
- Changes in population
These are goods and services that have an increasing demand when income increases.
Normal Goods
Commodities could be either?
Normal Goods/Inferior Goods
Price of related goods can either be?
Substitute Goods/Complimentary Goods
These are goods that can replace another commodity in its absence
Substitute Goods
These are goods that go hand-in-hand with each other
Complimentary Goods
Regarding Expectations on future prices, what is its effect on QD and QS?
If Prices will increase in the Future QD at the present will Increase and QS will Decrease
But
If Prices will decrease in the Future QD at the present will Decrease and QS will Increase
This is the quantity of goods and services sellers are able and willing to sell at different prices
Supply
As price increases what happens to Supply?
As Price increases Supply Increases
(Direct Relationship)
What is a
Supply Schedule?
Supply Curve?
Its the table cross referencing Price and Supply
Its a (line) graph cross referencing Prince and Supply
What are the Other Factors affecting Supply?
- Input Price
- Price of Related goods and Services
- Expectations on Future Prices
- Technology
- Government Regulations
- Number of Suppliers
- Unexpected calamities or Natural Disasters
What is the Law of Supply?
As Price increases, Quantity Supplied will increase ceteris paribus (assuming all factors are constant).
This is the point where QD=QS
Equilibrium
The Triangle above the equilibrium point is?
Surplus
The Triangle below the equilibrium point is?
Shortage
This is a measure of the impact of one variable over the other.
Elasticity
This is the measure of how much the quantity demanded of a good responds to change in the price of the good.
Price Elasticity of Demand
This is the measure of how much the quantity demanded of a good, responds to change in consumer income.
Income elasticity of Demand
This is the measure of how much the quantity demanded of one good responds to change in the price of another good.
Cross price elasticity of demand
This is the measure of how much the quantity supplied of a good responds to change in the price of the good.
Price Elasticity of Supply
Formula for PED (Give basic and Midpoint)
(((Q2-Q1))/Q1)/(((P2-P1))/P1)
and
(((Q2-Q1)/(Q2+Q1))/2)/(((P2-P1)/(P2+P1))/2)
What does the following PED’s mean?
1>
<1
=1
=Infinite
=0
In the same order they mean
Elastic (Q increases more than P)
Inelastic (P increases more than Q
Unit Elastic (They increase at an equal rate)
Perfectly Elastic (If price stays the same, Q increases infinitely)
Perfectly Inelastic (Q stays the same no matter the price)
How many possible reasons are there for PED to be higher?
5
Formula for IED
(((Q2-Q1))/Q1)/(((I2-I1))/I1)
What does IED determine?
Whether a good is normal or inferior
What do the following IED’s mean?
>0
>1
<1
<0
In the same order
Normal Good
Normal Good (Necessity) Income Inelastic
Normal good (Luxury) Income Elastic
Normal goods can be either?
Necessity or Luxury
This is the measure of percent increase in the quantity demanded of goods and services when there is a percent increase in the price of related goods of a commodity
Cross Price Elasticity of Demand
What do the following CPED’s mean?
>0
<0
In the same order
Substitute good
Complementary Good
Formula for CPED and Midpoint CPED
Qy2-Qy1 Qy2-Qy1
———— ——————
Qy1 (Qy2+Qy1)/2
————– —————————–
Px2-Px1 Px2-Px1
————- ————
Px1 (Px2+Px1)/2
How should you use CPED?
Treat it like this, QDy is what we want to know how it is affected by increases/decreases in the price of QDx
Example:
Badminton Racket=QDx and Px
Shuttlecock=QDy and Px
we can phrase it like “We want to know how the change in the price of badminton racket affects the demand of Shuttlecock”
if we reverse it, it becomes “We want to know how the change in the price of shuttlecock affects the demand of badminton Racket”
