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Economics > Chapter 2: Microeconomics / Reupload > Flashcards

Chapter 2: Microeconomics / Reupload Flashcards

1
Q

What is a market?

A

All those buyers and sellers who influence the price of a particular good or service

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2
Q

What are the conditions for a market to exist?

A
  • There must be at least one potential buyer and one potential seller of a good or service
  • Sellers must have a good/service that they are willing to sell
  • Buyers must have the means to purchase the goods/services
  • Terms of exchange must be agreed on
  • Transaction should be formalised
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3
Q

What determines which goods or services consumers buy and how much they are prepared to pay for them?

A

Value
Utility
Price

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4
Q

What does the concept of value prove?

A
  • Expressed by the amount of money willing to be sacrificed
  • measured in terms of monetary units
  • determined by satisfaction
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5
Q

What does the concept of utility prove?

A
  • The more benefit consumer finds in consumption, the greater the satisfaction
  • Utility is subjective and differs from person to person
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6
Q

What does the concept of price prove?

A
  • Defined by the amount requested or offered to obtain a good/service
  • We assume price is equal to value
  • people are not forced to buy
  • If they don’t buy demand drops, if they buy supply is sustained or increased
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7
Q

What is total utility?

A

The total benefit or satisfaction that a consumer derives from consuming a good or service

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8
Q

How do consumers spend their money?

A

In a way that will maximize the total utility they derive

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9
Q

What are markets composed of?

A
  • Buyers and sellers
  • product and factor markets
  • generic markets
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10
Q

Explain the composition of buyers and sellers

A
  • Buyers as a group determine the demand and sellers as a group determine the supply
  • Markets are established by interactions between buyers and sellers
  • These interactions can be direct or indirect
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11
Q

Explain the product and factor markets

A
  • Markets for goods and services are called product/goods markets, for factors they are called factor markets
  • the demand for the services of factors is derived from demand for products produced by these services
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12
Q

Explain generic markets

A
  • There are world generic markets for wheat, maize coffee etc.
  • Each of the markets are interlinked but are also separate
  • Like Russian dolls
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13
Q

What are the different forms of markets?

A

Perfect and imperfect markets

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14
Q

What are the four characteristics by which a market can be identified?

A
  • The number of producers
  • The nature of the product
  • Barriers to entry
  • Availability of information
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15
Q

What is a perfect market?

A

A market where no supplier is able to manipulate the price

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16
Q

Why can’t the supplier manipulate prices in a perfect market?

A
  • There are many suppliers
  • Products are produced by different suppliers and are homogeneous
  • There are no barriers to entry, suppliers can enter or exit the market freely
  • Complete information is available to producers and consumers about market conditions
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17
Q

Why are suppliers to perfect markets called price-takers?

A

They operate under condition of perfect markets and cannot manipulate prices of their goods/services

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18
Q

What are imperfect markets?

A
  • Monopoly and oligopoly markets are part of imperfect markets
  • prices are determined one-sidedly
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19
Q

Why are prices determined one sidedly in an imperfect market?

A
  • There is only one large supplier of a good or service in a monopoly, only a few large suppliers in oligopoly
  • The good or service supplied is unique and has no close substitutes
  • Entry into the market is restricted so that new suppliers cannot enter the market
  • Producers and consumers have incomplete knowledge about market conditions
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20
Q

What is a third kind of imperfect market?

A

monopolistic competition

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21
Q

Why are monopolistic suppliers referred to as price makers?

A

They have complete control over prices they charge

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22
Q

Why has the concept of a market been applied to the world recently?

A

Because of the advancements of electronics

23
Q

What has the effect of electronics resulted in?

A
  • It molded the world into a single economic village
  • A price change in one part of the world affects price change in the rest of the world
  • Goods purchased and delivered come from nearest section on globe
  • A product can be forwarded and delivered in different ways
24
Q

What are futures?

A

the prices of goods that are still to be produced

25
Q

What are the 5 conditions for goods to be suitable for trade in the world

A
  • There must be a wide demand
  • It must be transportable
  • The cost of transport must be small in relation to the value of the good
  • It must be durable
  • Entry must not be restricted
26
Q

What is the purpose of price?

A

It serves to calibrate demand and supply of a good or service

27
Q

What is the purpose of demand?

A

It starts the economic process

28
Q

What is demand?

A

The quantity of a good or service that consumers are willing and able to purchase over a given period of time

29
Q

What are the determinants of demand?

A
  • The price of the good
  • The consumers’ level of income
  • Tastes
  • Other factors
  • The prices of other goods and services
30
Q

What is a substitute good?

A

A good that can be used in place of another good to satisfy a want

31
Q

What is a complementary good?

A

A good that is consumed together with another good to satisfy a want

32
Q

What is known as the ceteris paribus assumption?

A

In order to analyse the impact of price on demand, we make the simplifying assumption that all other things remain the same

33
Q

What is a demand shedule?

A

A table that shows the quantity of a good or service demanded at different prices in a given period of time

34
Q

What does the law of demand state?

A

As the price of a product increases, less of the good is demanded

35
Q

What is a demand curve?

A
  • A demand curve is a graphical representation of a demand schedule
  • It shows the quantity of a good or service demanded at different prices
  • The negative slope is the result of the inverse relationship that exists between price and the quantity demanded
36
Q

What is the demand function?

A

A form of notation that links the dependant variable, quantity demanded with various independant variables that determine quantity demanded

37
Q

Why would an increase in demand occur?

A
  • An increase in the level of consumer incomes
  • An increase in the price of a substitute good
  • A decrease in the price of a complementary good
  • An increase in the size of the population
  • An increased desire by consumers to purchase the good
38
Q

Why would a decrease in demand occur?

A
  • A decrease in the level of consumer incomes
  • A decrease in the price of a substitute good
  • An increase in the price of a complementary good
  • A decrease in the size of the population
  • A decreased desire by consumers to purchase a good
39
Q

What is “change in demand”?

A

A shift of the demand curve from one position to the other

40
Q

Why does supply exist?

A

It is provoked by demand

41
Q

What is supply?

A

The quantity of a good or service that producers are willing and able to supply in a given period of time

42
Q

What are the determinants of supply?

A
  • The price that consumers are prepared to pay for the good or service
  • The price consumers are willing to pay for other goods and services
  • The cost of producing the good or service
  • The current level of technology
  • The production technique used
43
Q

What is a supply schedule?

A

A table that shows the quantity of any good or service that producers are willing and able to supply in a given period of time at specific prices

44
Q

What does the law of supply state?

A

The quantity supplied increases as the price of the good or service increases

45
Q

What is a supply curve?

A
  • A supply curve shows the quantity of a good or service that suppliers are willing and able to supply at different prices in a given period of time
  • Supply curves shift upward from left to right
  • The positive slope is a result of the law of supply
46
Q

What is the supply function?

A
  • A form of notation that links the dependent variable, quantity supplied with various independent variables that determine quantity supplied
  • Changes om independent variables will affect quantity supplied
47
Q

What variable will lead to a change in the quantity supplied?

A

A change in price

48
Q

How would a decrease in market supply occur?

A
  • An increase in the cost of production
  • A decrease in the number of products
  • Climatic conditions interfering with production of the good
  • Disruptions in production
49
Q

How would an increase in supply occur?

A
  • A decrease in the cost of production
  • An increase in the number of producers
  • Technological advances
  • Increases in labour productivity
50
Q

How would changes in supply occur?

A

A result of changes in the factors that determining the quantity supplied

51
Q

What is the foundation of a supply curve?

A

Costs

52
Q

What does marginal costs reflect?

A

A business’s supply

53
Q

What is equilibrium?

A
  • The price level at which demand and supply curves intersect
  • Quantity supplied is equal to quantity demanded

Economics (4 decks)

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