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Microeconomics introduction > demand and supply and consumer choice > Flashcards

demand and supply and consumer choice Flashcards

1
Q

what does the demand curve show?

A

Shows the relationship between price and quantity
demanded, holding ‘other things’ constant

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2
Q

what are substitutes?

A

goods in competitive demand and act as replacements for similar goods

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2
Q

what are complements?

A

If a price increase for good A reduces the
demand for good B then A&B are complements

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3
Q

What is derived demand?

A

A good that’s demanded in order to produce another good

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3
Q

What is composite demand?

A

A good demanded for two or more uses

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4
Q

What is the formula for PED?

A

% change in quantity demanded / % change in price

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5
Q

What are the determinants of PED?

A

Substitutes

Percentage of income

Luxury

Addictive

Time period

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6
Q

What is income elasticity of demand? (YED)

A

The responsiveness of demand to a change in income

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6
Q

What does a positive (+) and negative (-) mean when talking about income elasticity of demand?

A

positive (+): normal good

negative (-): inferior good

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7
Q

What is the cross elasticity of demand formula?

A

%change QD of good A/ %change P of good B

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8
Q

What is the income elasticity of demand formula?

A

% change in quantity demanded / % change in income

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9
Q

What is cross elasticity of demand? (XED)

A

the responsiveness of demand for one product to a change in the price of another product

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10
Q

What does a positive (+) and negative (-) mean when talking about cross elasticity of demand?

A

positive (+): substitute good

negative (-): complementary good

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11
Q

what is price elasticity of supply?

A

a measure of the responsiveness of the quantity supplied to a change in price

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12
Q

What are the determinants of PES?

A

Stocks

Spare capacity

Raw materials

Time supply

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13
Q

What is the PES formula?

A

% change in quantity supply / % change in price

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14
Q

What is an inelastic good?

A

it has an elasticity of 0-1

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15
Q

What is an elastic good?

A

it has an elasticity of 1+

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16
Q

What is a Normal good?

A

goods that consumers demand more of when their incomes rise

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16
Q

What happens if PED is 0?

A

it means it’s perfectly inelastic

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17
Q

What happens if PED is 1?

A

it means it’s unitary, quantity changes at the same rate as price

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18
Q

What is an inferior good?

A

goods that consumers demand less of when their incomes rise

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19
Q

what is an example of an inferior good?

A

low-quality clothing, boxed and canned food and no-name brands of staple products.

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20
Q

What is consumer surplus?

A

the difference between the total amount that consumers are willing and able to pay for a good or service and the total amount they do pay

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21
Q

What is producer surplus?

A

the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives

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22
Q

What is a subsidy?

A

A government payment that supports a business or market

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23
Q

What is a free market economy?

A

prices determined by demand and supply as there’s little government involvement

24
Q

What is market failure?

A

It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

25
Q

What is an externality?

A

a benefit or cost that affects a third party

26
Q

What are demerit goods?

A

Over consumer over produced goods that aren’t good for you

27
Q

What are merit goods?

A

goods that benefit you and are under consumed

28
Q

Prices above the equilibrium price are associated with what?

A

excess supply

29
Q

what does an increase in income lead to in terms of shifts?

A

it leads to a shift right on the supply curve

30
Q

In a market economy excess supply leads to

A

a fall in price

31
Q

The “law of demand” implies that what?

A

as prices Fall, quantity demanded increases

32
Q

If tea is a substitute for coffee and fresh lemons are a complement for tea but not for coffee, then a fall in the price of coffee will

A

. Reduce the demand for tea and lemons

33
Q

Which of the following could not cause a shift of a firm’s supply curve for
cars?

A

A change in the price of cars

34
Q

As long as households have limited incomes and wealth what will happen?

A

all demand curves will intersect the price axis

35
Q

If a buyer’s demand for chicken thighs decreases as her income increases, chicken thighs for her are a what good.

A

inferior

36
Q

Demand curves are derived while holding constant what?

A

Income, tastes, and the prices of other goods.

37
Q

During an economic downturn when consumer income falls, the demand for ice cream cones increases and the demand for chocolate cheesecake
decreases. This implies ice cream cones

A

Are an inferior good and chocolate cheesecake is a normal good

38
Q

Suppose a recently developed medicine became available in the UK and the government set the price equal to the cost of production. This led to a shortage of the medicine and therefore the government regulated its distribution. Had the medicine been sold under a free-market system:

A

There is not enough information given to determine whether or not there would be a price change.

39
Q

The market for strawberries is in equilibrium until an unusual amount of rain floods some of the fields. What would occur

A

Equilibrium prices increase and equilibrium quantity decreases

40
Q

Suppose the market for ferry travel to the continent is initially in equilibrium, then ferry, train, and airplane employees go on strike. If there was a
settlement and a moderate increase in the wages of ferry employees while simultaneously the train and airplane employees remained on strike, what would most likely happen to equilibrium price and quantity for ferry travel?

A

The equilibrium price would rise, and the equilibrium quantity would
increase.

41
Q

The price of mozzarella cheese increases. In the market for pizza you would expect that the

A

. Demand for pizza would decrease and the price of pizza would fall.

42
Q

what is the demand equation?

A

Qd= a-bP

43
Q

what is the supply equation?

A

Qs= c + dP

44
Q

why is the supply curve upwards sloping?

A

as you produce more costs rise therefore price rises due to the profit motive of producers

45
Q

What is equilibrium price?

A

when Qs = Qd

46
Q

what is a controlled planned or command economy?

A

an economy where the market doesn’t really allocate resources and the government gets involved more which can lead to shortages in resources etc eg north korea, venezuela

47
Q

what are mixed market economies?

A

resources are allocated via the market as well as government intervention as well eg UK, Germany

48
Q

what are market economies?

A

highly rely on the market in order to allocate resources eg US, Singapore

49
Q

what happens to the market in a crisis?

A

governments often remove the market eg for wages minimum wage, for energy theres a price cap etc

50
Q

what is a price ceiling?

A

the max price good can be sold at

51
Q

what is a price floor?

A

the minimum price goods can be sold at

52
Q

what is an indifference curve?

A

its a downward sloping curve where at every point in the curve the individuals utility doesn’t differ eg dont care about 5 bananas and 7 apples or 7 bananas and 5 apples

53
Q

what does above and below the indifference curve show?

A

below shows whats not prefered and above shows what is prefered and on the line is just satsified

54
Q

what does it mean if the indifference curve is higher?

A

greater utility

55
Q

what are preferences?

A

they are complete and transitive

56
Q

what is meant by transitive

A

if they prefer A to B and B is preferred to C then A has to be preferred to C

57
Q

how do you find the slope of the budget line?

A

the ratio of price of good 1 and good 2 so just price of good on x axis divided price of goods on y axis

58
Q

utility maximisation is equal to what?

A

The ratio of the marginal utilities and the prices

59
Q

if mu1/p1 is greater than mu2/p2 what should a consumer do?

A

buy more of good 1 as the you get more satisfaction per price

60
Q

When deriving a utility function, do we make interpersonal comparisons of utility?

A

never

60
Q

Tina and Tom buy the same amounts of apples and
bananas at a supermarket where apples are £3/kg and
bananas £4/kg. Do Tina and Tom have the same marginal
rate of substitution for apples and bananas?

A

Yes

61
Q

At the utility maximizing point is Marginal utility is higher for more
expensive goods

A

yes

Microeconomics introduction (7 decks)

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