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Economics: AQA 2015 > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

What is a market?

A

A situation where buyers and sellers come together to engage in trade

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2
Q

What is a competitive market?

A

A situation where there is a larger number of potential buyers and sellers with abundant information about the market

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3
Q

What is an equilibrium price?

A

The price at which the planned demand of consumers equals the planned supply of firms

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4
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 particular time period

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5
Q

What is effective demand?

A

Consumers’ desire to buy a good, backed up with the ability to pay

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6
Q

What is an increase in quantity demanded resulting from a fall in price known as?

A

An extension in demand along the demand curve

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7
Q

What is a decrease in demand resulting from an increase in price known as?

A

A contraction of demand along the demand curve

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8
Q

What are the five conditions of demand?

A

Real disposable incomes

Tastes and preferences (fashions)

Population

Prices of substitute products

Prices of complementary products

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9
Q

What happens if any of the conditions of demand change?

A

The demand curve for the good or service that question will shift to either the left or the right

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10
Q

What is the definition of price elasticity of demand?

A

The responsiveness of quantity demanded of a good to a change in price

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11
Q

How do you calculate PED?

A

PED=

% change in quantity demanded / % change in price

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12
Q

What is the value of PED if the product is price inelastic?

A

Between 0-1, ignoring the minus sign

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13
Q

What is the value of PED if the demand for a product is price elastic?

A

Greater than 1, ignoring the minus sign

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14
Q

When the demand for a product is price unitary elastic, what is the value of PED?

A

Exactly 1, ignoring the minus sign

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15
Q

When the demand for a product is perfectly price inelastic, what is the value of PED?

A

Exactly 0

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16
Q

When the demand for a good is perfectly elastic, what is the value of PED?

A

Infinity

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17
Q

If demand of a good is price elastic, what will a reduction in price lead to in terms of total revenue?

A

Increase in total revenue

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18
Q

If demand for a good is price inelastic, what does a reduction in price lead to in terms of total revenue?

A

Decrease in total revenue

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19
Q

If demand for a good is price elastic, what does a price increase lead to in terms of total revenue?

A

Reduction in total revenue

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20
Q

If demand for a good is price inelastic, what does a price increase lead to in terms of total revenue?

A

Increase in total revenue

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21
Q

What are the determinants of PED?

A

Availability of close substitutes

Percentage of income spent on the product

Nature of the product (necessity, addictive, luxury)

Time period

Broad or specific market definition (a broad market definition is likely to be more price inelastic than a more specific market definition)

22
Q

What is the definition of income elasticity of demand?

A

The responsiveness of demand for a good to a change in consumers’ real income

23
Q

How would you calculate YED?

A

YED =

% change in quantity demanded / % change in real income

24
Q

If demand for a product is income inelastic, what is the value of YED? What is the nature of the product?

A

Between 0-1

Basic goods

25
Q

If the demand for a good is income elastic, what is the value of YED? What is the nature of the product?

A

Greater than 1

Luxury good

26
Q

What is the nature of the product if the demand for it is negative income elastic?

A

Inferior good

27
Q

What is the definition of cross elasticity of demand?

A

The responsiveness of the demand for a product following a change in price for another product

28
Q

How would you calculate XED?

A

XED =

% change in quantity demanded of product A / % change in price of product B

29
Q

If the value of XED is positive, what is the relationship of the two products?

A

Substitutes

30
Q

If the value of XED is negative, what is the relationship of the two products?

A

Complements

31
Q

What is supply?

A

The quantity of a good or service that firms plan to sell at given prices at a particular time period

32
Q

What is an increase in quantity supplied resulting in an increase in price known as?

A

Extension in supply along the supply curve

33
Q

What is a decrease in supply resulting from a decrease in price know as?

A

Contraction in supply along the supply curve

34
Q

What are five conditions of supply?

A

Production costs

Productivity of labour

Taxes on businesses

Production subsidies

Technology

35
Q

What happens if any of the conditions of the supply change?

A

The supply curve for a good or service in question will shift either to the right or the left

36
Q

What is the definition of price elasticity of supply?

A

The responsiveness of the quantity supplied of a good or service to a change in price

37
Q

How would you calculate PES?

A

PES =

% change in quantity supplied / % change in price

38
Q

When the supply of a product is price inelastic, what is the value of PES?

A

Between 0-1

39
Q

When the supply of a product is price elastic, what is the value of PES?

A

Greater than 1

40
Q

What is meant by unitary elastic supply? And what will the value of PES be if the supply of a good is unitary elastic?

A

When the change in price has led to the same percentage change in quantity supplied.

PES will equal exactly 1

41
Q

What is the value of PES if the supply for the product is perfectly inelastic?

A

PES = 0

42
Q

What is the value of PES if the supply of a good is perfectly elastic?

A

PES = infinity

43
Q

What are the determinants of PES?

A

Time taken to expand supply

Size of spare capacity

Available stocks

Ease of switching production

44
Q

What is a market disequilibrium?

A

A situation where the quantity demanded does not equal the quantity supplied

45
Q

What is excess supply?

A

When the quantity supplied exceeds the quantity demanded

46
Q

What is excess demand?

A

When the quantity demanded exceeds the quantity supplied

47
Q

What are the market forces?

A

The interaction of the forces of demand and supply

48
Q

What is joint demand?

A

Goods that tend to be demanded together, i.e complementary goods

49
Q

What is joint supply?

A

When the production of one good leads to the production of another good. A good example is beef and leather, both arising from cattle farming

50
Q

What is composite demand?

A

When a good is demanded for more than one distinct use

51
Q

What is derived demand?

A

When a particular good or factor of production is necessary for the provision of another good or service

Economics: AQA 2015 (4 decks)

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