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Economics: MicroeconomicS > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

What is a market

A

A voluntary meeting of buyers and sellers, both buyer and sellers have to be willing partners of exchange

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2
Q

What is a competitive market

A

They have lots of buyers and sellers anyone can join

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3
Q

What is the law of demand

A

As the price of goods falls, the more of that good will be demanded

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4
Q

Points that affect the demand of a product

A

-the price of substitute goods
-the price of goods in joint demand of complementary goods
-personal income
-tastes and preferences
-population size

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5
Q

What does an increase in demand cause to the diagram

A

Shift to the right
— more is demanded at the same price

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6
Q

What happens if demand decreases what happens to the demand curve

A

— the curve shifts inward and less is demanded at given price

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7
Q

is the demand curve UPWARD or DOWNWARD sloping

A

Downward

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8
Q

Because the demand curve is downward sloping as prices rise the quantity demanded …

A

Quantity demand fall causing a movement along the demand curve

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9
Q

Is there a positive or inverse relationship between price and quantity demanded

A

Inverse

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10
Q

TRUE OR FALSE: are consumers utility maximizers

A

TRUE
They will demand more at a lower price

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11
Q

Is the supply curve UPWARD or DOWNWARD sloping

A

Upward

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12
Q

The supply curve is upward sloping so as prices rise quantity supplied should

A

Quantity supplied should rise

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13
Q

Does supply have a POSITIVE or INVERSE relationship between price and quantity supplied

A

POSITIVE

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14
Q

TRUE OR FALSE: are firms utility maximzers

A

FALSE
FIRMS ARE PROFIT MAXISIMERS
As they supply more and it becomes more profitable to do so

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15
Q

What are the conditions of supply

A

Cost of production: wage cost, raw material cost, energy costs, cost of borrowing
-technical progress
-taxes imposed on firms
-subsidies

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16
Q

examples of causes of shifts of shift in the market supply curve

A

Changes in unit costs of production
-A change in the exchange rate
-Advances in production technologies
-The entry of more/new producers
-Favourable weather conditions
-Taxes, subsidies and government regulations

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17
Q

what is elasticity

A

Whenever a change in one variable (such as price) causes a change to occur in a second variable (such as quantity of a good)

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18
Q

what does PED stand for

A

Price Elasticity of Demand

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19
Q

what is PED a measure of

A

PED is a measure of the responsiveness of quantity demanded change in price

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20
Q

what is the PED formula

A

percentage change in quantity demanded / percentage change in price

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21
Q

what is percentage change formula

A

final - initial / inital X 100

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22
Q

what does it mean if PED = 0

A

PED is perfectly inelastic

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23
Q

what does it mean if PED is perfectly inelastic

A

demand will not change if price changes

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24
Q

what does a diagram with PED = 0 look like?

A

demand curve is vertical

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25
what does it mean if PED = between 0 and 1
demand is inelastic
26
what does it mean if demand is inelastic
demand often remains constant despite price changes.
27
what does it mean if PED = 1
demand is unit elastic
28
what does it mean if demand is unit elastic
if price increases revenue remains the same
29
if the PED is greater than 1 what does it mean
demand is elastic
30
what does it mean if demand is elastic
if price increases we will lose out on revenue
31
what does YED
Income Elasticity of Demand (YED)
32
what does YED measure
a measure of the responsiveness of demand for a good to a change in consumer income
33
how do you calculate YED
It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
34
when income demand is between -1 and +1
Demand is income inelastic if the value is between -1 and +1
35
when income demand is less than -1 but more than +1
Demand is income elastic is the value is less than -1 or more than +1
36
what happens to demand when the YED = 0
no matter how income rises, demand remains constant
37
what type of income elasticity do normal goods have
A normal good has an income elasticity of demand that is *positive*, but less than one
38
what type of income elasticity do luxury goods have
theyre income elastic where income elasticity is greater than +1
39
what type of income elasticity do necessities have
they're income inelastic here the income elasticity > 0 and < +1
40
what type of income elasticity do inferior goods have
negative YED these have negative income inelasticity
41
what makes a good inferior
If following an increase income, less of the good is consumed then the good is an inferior good
42
what happens to the demand for inferior goods in a time of rising incomes
When real incomes are rising during a period of economic growth, then the demand for inferior goods will fall causing an inward shift of the demand curve
43
what happens to the demand for inferior goods ina time of recession
When real incomes are falling during a period of recession or (more generally) if wages are rising more slowly than prices, the demand for inferior goods will rise
44
what is XED
cross price elasticity of demand
45
what does XED measure
Cross price elasticity (XED) measures responsiveness of demand for good x following a change in price of related good Y
46
what is the formula for XED
% change in quantity demanded for good X divided by % change in price for good Y
47
what does XED tell us
if good are either complementary or substitutes
48
what are substitute goods
Substitute are products in competitive demand
49
what is the XED when the goods are substitutes
positive
50
what are complementary goods
Complements are products that are in joint demand
51
what is the XED when the goods are complementary
Negative
52
what does PES stand for
price elasticity of supply
53
what does PES measure
PES measures the relationship between change in quantity supplied and a change in price
54
what is the formula for PES
% change in quantity supplied divided by the % change in price
55
what does it mean when the PES = greater than 1
supply is elastic
56
what does it mean when the PES = less than 1
supply is inelastic
57
what does it mean when PES = 0
supply is perfectly inelastic
58
what does it mean when PES = infinity
supply is perfectly elastic
59
TRUE or FALSE do firms want a low PES
FALSE firms want a high PES
60
why do firms want a high PES
so they respond quickly to changes in price and demand – making supply as elastic as possible
61
what can firms do to make their PES more elastic
increase storage space increase refrigeration space increase Machinery Also the more time a firm has to prepare the higher the PES
62
examples of what can cause a change in demand
Consumer income Price of substitute Price of complements Tastes and fashion
63
examples of what can cause a change in supply
Production costs Technological change Taxes Subsidies
64
what is joint supply
Occurs when the production of one good leads to the supply of a by-product
65
example of joint supply
beef and leather
66
example of substitute demand
Sony consoles and Xbox are in substitute demand
67
what is complementary demand
the demand of one good is linked to the demand for another good
68
example of complementary demand
Sony games consoles and sony game cartridges are in joint demand (complementary)
69
what is composite demand
Composite demand is demand for a good which has more than one use reducing the demand for the good without the alternative uses
70
what is derived demand
Occurs when a good is necessary for the production of other goods
71
example of derived demand
E.g if the demand for cars fall, so does the demand for engines and gearboxes

Economics: MicroeconomicS (5 decks)

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