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Microeconomics > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

What is a market

A

A voluntary meeting of buyers and sellers with exchange taking place

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2
Q

What is demand

A

The quantity of a good or service that consumers are willing and able to buy at given prices in a given time period

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3
Q

What is supply

A

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

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4
Q

What are competitive markets

A

Markets in which the large number of buyers and sellers possess good market information and can easily enter or leave the market

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5
Q

What is the ruling market price

A

The price at which planned demand equals planned supply

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6
Q

What is effective demand

A

The desire for a good or service backed by an ability to pay

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7
Q

What is market demand

A

The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices

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8
Q

What is individual demand

A

The quantity of a good or service that a particular consumer or individual is willing and able to buy at different market prices

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9
Q

What is a condition of demand

A

A determinant of demand other than the goods own price that fixes the position Of the demand curve

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10
Q

What are substitute goods

A

Alternative goods that could be used for the same purpose

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11
Q

What are complementary goods

A

When two goods are complements they experience joint demand

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12
Q

What is a normal good

A

A good for which demand increases as income rises and demand decreases as income falls

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13
Q

What is an inferior good

A

A good for which demand decreases as income rises and demand increases as income falls

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14
Q

What is elasticity

A

The proportionate responsiveness of a second variable to an initial change in the first variable

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15
Q

What is the price elasticity of demand

A

Measures the extent to which the demand for a good changes in response to a change in the price of that good

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16
Q

What is the short run

A

The time period in which at least one factor of production is fixed and cannot be varied

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17
Q

What is the long run

A

The time period in which no factors of production are fixed and in which all the factors of production can be varied

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18
Q

What is income elasticity of demand

A

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

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19
Q

What is cross elasticity of demand

A

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

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20
Q

What is market supply

A

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

21
Q

What is profit

A

The difference between total sales revenue and total costs of production

22
Q

What is total revenue

A

All the money received by a firm for selling its total output

23
Q

What is a condition of supply

A

A determinant of supply other than the goods own price that fixes the position of the supply curve

24
Q

What is price elasticity of supply

A

Measures the extent to which the supply of a good changes in response to a change in the price of that good

25
Q

What is equilibrium

A

A state of rest or balance between opposing forces

26
Q

What is disequilibrium

A

A situation in which opposing forces are out of balance

27
Q

What is market equilibrium

A

A market is in equilibrium when planned demand equals planned supply, where the demand curve crosses the supply curve

28
Q

What is market disequilibrium

A

Exists at any price other than the equilibrium price

29
Q

What is excess supply

A

When firms wish to sell more than consumers wish to buy, with the price above the equilibrium price

30
Q

What is excess demand

A

When consumers wish to buy more than firms wish to sell with the price below the equilibrium price

31
Q

What is joint supply

A

When one good is produced another good is also produced from the same raw materials perhaps as a by product

32
Q

What is composite demand

A

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

33
Q

What is derived demand

A

Demand for a good or factor of production, wanted not for its own sake, but as a consequence of the demand for something else

34
Q

When does a movement along a demand curve happen

A

Only when the goods price changes

35
Q

What conditions of demand shift the demand curve

A 
Price of substitute goods 
Price of complementary goods 
Personal income 
Taste and preferences 
Population size
36
Q

Formula for PED

A

Ped = percentage change quantity demanded / percentage change in price

37
Q

Formula for yed

A

Yed = Percentage change in quantity demanded /

Percentage change in income

38
Q

Formula for XED

A

XED= percentage change in quantity of A demanded /

Percentage change in price of B

39
Q

What are the factors determining price elasticity of demand

A 
Substitutability 
Percentage of income 
Necessities or luxuries 
The width of the market definition
Time
40
Q

What is substitutability in terms of factors determining PED

A

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

41
Q

What is percentage of income in determining price elasticity of demand

A

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

42
Q

What are necessities or luxuries in terms of factors determining price elasticity of demand

A

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

43
Q

What is the Time in determining price elasticity of demand

A

Demand is more elastic in the long run than in the short run because it takes time to respond to a price change

44
Q

What is income elasticity for demand an inferior good

A

Always negative

45
Q

What is income elasticity of demand for a normal good

A

Positive

46
Q

A good that is a necessity has an income elasticity lying between

A

0 and 1

47
Q

A good that is a luxury has a income elasticity of demand

A

1+

48
Q

What are the main conditions of supply

A

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

49
Q

What are the factors that determine price elasticity of supply

A

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

Microeconomics (8 decks)

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