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IMC > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

What do price income elasticities tell us

A

How a consumer may react to changes in price or income

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2
Q

What does economic theory help us understand 3 things

A

How individuals, firms and markets interact
Investments into securities sectors and firms
How wider economy can effect economic context in which they operate

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3
Q

What are economic analysts used for

A

For forecast and outlook

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4
Q

Economic analysts have well defined assumptions of…

A

Efficient markets - no systematic errors

Ceteris paribus -relationships understood if all else remain unchanged

Max personal utility

Agents well informed and rational

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5
Q

What is market economy

A

Prices vary depending on competition

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6
Q

What is command economy

A

Gov decides what is produced and how it is distributed

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7
Q

What. Is mixed economy

A

Mix of the market and command economy

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8
Q

Details about points inside production possibility frontier

A

Feasible but inefficient

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9
Q

What does moving along production possibility frontier mean

A

There is a trade off

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10
Q

Opportunity cost wrt apples and machines

A

Number of machines given up to increase apples by 1 = opportunity cost

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11
Q

What affects demand

A

Price
Availablility of substitutes
Income
Health

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12
Q

Veblen goods?

A

Higher prices equals higher demand -eg luxury watches

Positive price elasticity

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13
Q

Normal goods

A

Higher income equals increase demand

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14
Q

Inferior goods

A

Higher income equals less demand

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15
Q

Price elasticity of demand meaning and formula

A

Sensitivity of a change in demand when price changes

Change in quantity of change in price

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16
Q

When elasticity is greater than modulus of one, what is it

A

Elastic

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17
Q

What happens to revenue when you decrease price of elastic good

A

Increase revenue

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18
Q

What happens to revenue when you decrease price of Inelastic goods

A

Decrease total revenue

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19
Q

What happened to revenue when you decrease price of unit elastic good

A

No change in revenue

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20
Q

Cross price elasticity ?

A

Change in quantity demanded in response to a proportionate change in price of a other good

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21
Q

Cross price elasticity of demand of biscuits in relation to price of coffee

A

Change in biscuit demand over change in coffee price

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22
Q

What does negative cross elasticity mean

A

Complimentary goods

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23
Q

What does positive cross elasticity mean

A

Substitute goods

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24
Q

What is the elasticity of an easily susbstituted good

A

Elastic

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25
Q

Long term elasticity

A

Length of time that is necasrassary for all adjustments to be made in response to price change

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26
Q

Short term elasticity

A

Response when price changes and Consumers have not fully adjusted to price change

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27
Q

Income elasticity of demand

A

Measure chnage in demand relative to chnage in income

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28
Q

What elasticity do luxury goods have

A

Elasticity of greater than one

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29
Q

What elasticity do necessity goods have

A

Elasticity of less than 1

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30
Q

Budget share meaning and how it’s affected for luxury and necessity goods as income increases

A

Proportion of income spent on a good

Budget share increases for luxury and decreases for necessity as income increases

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31
Q

Given goods and example and why does this happen

A

Demand increases as price increases

Potatoes rice

Negative income effect out weighs sub effect

32
Q

Opportunity costs

A

How much production costs would earn in their next best alternative use

33
Q

Supernormal profit is

A

Accounting profit - oppcosts

34
Q

How variable costs change with output

A

Low output = high VC due to inefficiency
Intermediate output = resources used more efficiently so vc slows down
High output = sharp vc increase due to increase rent and increase work space required

35
Q

When do firms produce till

A

Mc= mr or until mc is greater than mr

36
Q

What are the costs in long run

A

All varied

37
Q

What are costs in short run

A

Some costs are fixed

38
Q

What happens when LRAC is decreasing

A

Increasing returns to scale

As resources are used more efficiently

39
Q

What happens when LRAC is increasing

A

Decreasing returns to scale

40
Q

What is the lowest point on LRAC

A

Minimum efficient scale, MES

41
Q

What’s happening to ac when mc is less than ac

A

Ac is falling

42
Q

When can we ensure production in long and short run

A

Price is greater than LRAC in long run and SRAVC in short run

43
Q

Perfect competition

A

Neither buyers nor sellers can influence the price

44
Q

Characteristics of perfect competition

A

Large number of buyers and sellers
Homogenous goods
No barriers to market

45
Q

What demand does perfect comp face

A

Horizontal demand curve

46
Q

What determines supply in the long run in perfect comp

A

MC

47
Q

What happens if all firms have same cost curves

A

Horizontal industry supply curve

48
Q

What is flatter, long run supply or short run supply

A

Long run supply due to increased resource efficiency

49
Q

What happens when price is greater than or less than equilibrium price

A

Price greater then p star then super normal profits occur so new entrants into market compete away the profit

Price less than p star then there would be unsustainable losses

50
Q

Pure monopoly ?

A

One supplier that forces downward demand curve

51
Q

Where do monopolies produce

A

On the elastic part of the demand curve

52
Q

Natural monopolies occur when …

A

There is a falling LRAC over a large range of output, ie start up costs are very high

53
Q

Perfect price discrimination

A

All customers are charged a different price

54
Q

Monopolistic competition

A

Large numbers of small firms with no barriers to entry but products are differentiated

55
Q

Oligopoly

A

Have some price power, few firms with significant barriers to entry, products homogenous or differentiated

56
Q

Cartel agreement

A

Group of firms agree a price and quantity to sell

57
Q

Tacit agreement

A

No legally binding cartel agreement

58
Q

When do kinked demand curves arrive

A

If a single firm lowers its pricing then competing firms follow

59
Q

Price leadership model

A

One firm sets price and others follow

60
Q

What is the market share for price leadership model and what can this lead to

A

Market demand is shared between firms and so larger firms have incentive to drive smaller ones out of business called predatory pricing which is illegal

61
Q

What is the output of a duopoly

A

Somewhere between Qpc and Qmonopoly

62
Q

Bull market sequence

A

Transportation and energy lead market upwards
Credit and tech follow
Consumer growth and cyclicals
Capital goods and financial get strong as market peaks

63
Q

When does bear market take hold

A

Just before economy tops out

64
Q

What performs relatively well in bear markets

A

Basic industries and consumer staples, utilities

65
Q

When is good for stock market recovery

A

Recessions and market recovery

66
Q

Porters 5 competitive forces

A

Bargaining power of suppliers
Bargaining power of customers
Threat of new entrants
Threats of substitute product
Rivalry

67
Q

Product life cycle

A

Introduction
Growth
Mature
Decline
Obsolete

68
Q

Limitation of product life cycle

A

Assumes customers don’t return to old preferences
Nothing done to revive product
Firms have many products and not just one
Time scale of each phase

69
Q

Swot analysis meaning

A

Strengths weakness # internal to business
Opps and threats - external to business

70
Q

Introduction phase of product life cycle

A

Sales grow slowly and could attract competition but still low profits

71
Q

Growth phase of product life cycle

A

Sales increase rapidly and competition is attracted but profits increase

72
Q

Mature phase of product life cycle

A

Product well known with economies of scale, innovation needed to beat competition

73
Q

Decline phase of product life cycle

A

Falling market share and profits and increased advertising or relaunch required

74
Q

Product research 4 Ps

A

Product - it does what it’s supposed to
Place - easily accesible to customers
Promotion -adverts to target customer
Price - good value for money

75
Q

3 Ps for service

A

People -waiter
Process- fast food or relax dininin
Physical - element of service is provided like food

IMC (2 decks)

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