Chapter 3 Flashcards
What is a market
A voluntary meeting of buyers and sellers with exchange taking place
What is demand
The quantity of a good or service that consumers are willing and able to buy at given prices in a given time period
What is supply
The quantity of good or service that producers are willing and able to sell at given prices in a given period of time
What are competitive markets
Markets in which the large number of buyers and sellers possess good market information and can easily enter or leave the market
What is the ruling market price
The price at which planned demand equals planned supply
What is effective demand
The desire for a good or service backed by an ability to pay
What is market demand
The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices
What is individual demand
The quantity of a good or service that a particular consumer or individual is willing and able to buy at different market prices
What is a condition of demand
A determinant of demand other than the goods own price that fixes the position Of the demand curve
What are substitute goods
Alternative goods that could be used for the same purpose
What are complementary goods
When two goods are complements they experience joint demand
What is a normal good
A good for which demand increases as income rises and demand decreases as income falls
What is an inferior good
A good for which demand decreases as income rises and demand increases as income falls
What is elasticity
The proportionate responsiveness of a second variable to an initial change in the first variable
What is the price elasticity of demand
Measures the extent to which the demand for a good changes in response to a change in the price of that good
What is the short run
The time period in which at least one factor of production is fixed and cannot be varied
What is the long run
The time period in which no factors of production are fixed and in which all the factors of production can be varied
What is income elasticity of demand
Measures the extent to which the demand for a good changes in response to a change income: it is calculated by dividing the percentage change in quantity demanded by the percentage change in income
What is cross elasticity of demand
Measures the extent to which the demand for a good changes in response to a change in the price of another good; it is calculated by dividing the percentage change in quantity demanded by the percentage change in the price of another good
What is market supply
The quantity of a good or service that all the firms in a market plan to sell at given prices in a given period of time
What is profit
The difference between total sales revenue and total costs of production
What is total revenue
All the money received by a firm for selling its total output
What is a condition of supply
A determinant of supply other than the goods own price that fixes the position of the supply curve
What is price elasticity of supply
Measures the extent to which the supply of a good changes in response to a change in the price of that good
What is equilibrium
A state of rest or balance between opposing forces
What is disequilibrium
A situation in which opposing forces are out of balance
What is market equilibrium
A market is in equilibrium when planned demand equals planned supply, where the demand curve crosses the supply curve
What is market disequilibrium
Exists at any price other than the equilibrium price
What is excess supply
When firms wish to sell more than consumers wish to buy, with the price above the equilibrium price
What is excess demand
When consumers wish to buy more than firms wish to sell with the price below the equilibrium price
What is joint supply
When one good is produced another good is also produced from the same raw materials perhaps as a by product
What is composite demand
Demand for a good which has more than one use , which means that an increase in demand for one use of the food reduces the supply of the food for an alternative use. It is related to the concept of competing supply
What is derived demand
Demand for a good or factor of production, wanted not for its own sake, but as a consequence of the demand for something else
When does a movement along a demand curve happen
Only when the goods price changes
What conditions of demand shift the demand curve
Price of substitute goods Price of complementary goods Personal income Taste and preferences Population size
Formula for PED
Ped = percentage change quantity demanded / percentage change in price
Formula for yed
Yed = Percentage change in quantity demanded /
Percentage change in income
Formula for XED
XED= percentage change in quantity of A demanded /
Percentage change in price of B
What are the factors determining price elasticity of demand
Substitutability Percentage of income Necessities or luxuries The width of the market definition Time
What is substitutability in terms of factors determining PED
When a substitute exists for a product consumers respond to a price rise by switching expenditure away from the good and buying the substitute where the prices has not risen
What is percentage of income in determining price elasticity of demand
Demand curves for goods or services on which households spend a large proportion of their income tend to be more elastic than those small items that account for only a small fraction of income
What are necessities or luxuries in terms of factors determining price elasticity of demand
Demand for necessities is price in elastic whereas the demand for luxuries is elastic
When no obvious substitute exists for a luxury good may be inelastic
What is the Time in determining price elasticity of demand
Demand is more elastic in the long run than in the short run because it takes time to respond to a price change
What is income elasticity for demand an inferior good
Always negative
What is income elasticity of demand for a normal good
Positive
A good that is a necessity has an income elasticity lying between
0 and 1
A good that is a luxury has a income elasticity of demand
1+
What are the main conditions of supply
Costs of production- wage costs, raw material costs, energy costs and cost of borrowing
Technical progress
Taxes imposed on firms such as VAT
Subsidies granted to firms
What are the factors that determine price elasticity of supply
Length of the production period
Availability of spare capacity
Ease of accumulating sticks
Ease of switching between alternative methods of production
Number of firms in the market and the ease of entering the market
Time - market period supply, short run supply, long run supply
