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ECONS506 > Demand & Supply + Elasticity > Flashcards

Demand & Supply + Elasticity Flashcards

1
Q

Define what is meant by a market?

A

A group of buyers and sellers of a particular good or service

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2
Q

Within a market what do buyers determine?

A

Buyers determine Demand

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3
Q

Within a market what do sellers determine?

A

Sellers determine supply

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4
Q

What defines a competitive market?

A

A market in which there are many buyers and many sellers so that each has a negligible impact on the market place

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5
Q

What are the two identifiers of a Perfect Competitive market?

A

1) The goods offered for sales are all exactly the same

2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price

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6
Q

Define what is meant by Quantity Demand

A

The amount of a hood that buyers are willing and able to purchase

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7
Q

State what the law of Demand is

A

The claim that other things being equal, the quantity demanded of a good falls when the price of a good rises

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8
Q

What is the table called that you would use to display the price of a good and the quantity demanded?

A

Demand curve on a Demand Schedule

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9
Q

What is meant by the phrase “Ceteris Paribus” and what is its importance?

A

Other thing being equal. Reminder that all variables other than the ones being studied are assumed to be constant

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10
Q

What has happened when we see a shift of the demand curve to the right?

A

A shift in the demand curve to the right is a result of an increase in quantity demanded at a given price. e.g ice cream is demanded more during hot weather

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11
Q

What are the effects of increased income on a normal good?

A

An increase in income leads to an increase in the quantity demanded of a normal good

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12
Q

What are the effects of an increase income on a Inferior Good?

A

An increase of income would see a decrease in the quantity demanded of a inferior good

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13
Q

What is meant by the term substitutes, when referring to Demand?

A

Two goods for which a decrease in the price of one good leads to a decrease in the demand for the other good. e.g coke & pepsi

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14
Q

What is meant by the term complements, when referring to Demand?

A

Two goods for which a decrease in the price of one good leads to an increase in the demand for the other good. E.g. cream & hot chocolate

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15
Q

What is meant by “Quantity Supplied”?

A

The amount of a good that sellers are willing and able to sell

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16
Q

Define the Law of Supply

A

The claim that at Ceteris paribus that quantity supplied of a good rises when the price of a good raises

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17
Q

What are the four main reasons that will see a shift in quantity of supply

A

Input price
Technology
Expectations
Number of sellers

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18
Q

What is meant by “input price” in regards to the supply curve

A

Any change in the cost of production will see a shift of the supply charge

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19
Q

You produce ice cream, the price of sugar has dropped, explain the effects if any to the supply curve.

A

The supply curve will shift to the right as sugar is an in put of ice cream making it cheaper to produce

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20
Q

State what the “Law of supply and demand” is

A

The claim that a good at any price adjusts to bring the supply & demand of that good into balance

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21
Q

What does the term Equilibrium mean?

A

A situation in which supply and demand are at rest

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22
Q

What is the Equilibrium Price?

A

The price that balances quantity supplied and quantity demanded

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23
Q

What is meant by the term “Surplus” in reference to supply and demand?

A

Goods supplied exceeds the quantity demanded

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24
Q

What is meant by the terms “shortage” in reference to supply and demand?

A

Quantity demanded exceeds the quantity supplied

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25
Q

What are the three steps for analyzing changes to the equilibrium

A

1) Decide if the event shifts, supply, Demand, or both
2) Decide if the curve shifts right or left
3) Create a Supply and Demand curve to compare initial and new equilibrium

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26
Q

What is the difference between “supply” and “quantity supplied”

A

Supply refers to the position on the supply curve where as quantity supplied refers to the amount suppliers wish to sell

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27
Q

When would you see movement along the supply or demand curve

A

When we see a change in quantity supplied or demanded due to the investigating determinate e.g price change

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28
Q

What is meant by the term “Elasticity”?

A

A measure of responsiveness of quantity demanded or quantity supplied to one of its determinants

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29
Q

What is price elasticity of demand?

A

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

30
Q

What is meant by the term “elastic” when we refer to supply and demand?

A

The quantity demanded and supplied responds largely to changes in price

31
Q

What is meant by the term “inelastic” when we refer to supply and demand?

A

The quantity demanded and supplied responds only slightly to changes in price

32
Q

How do you calculate Elasticity of demand & supply?

A

Elasticity= % Change in quantity / % change in price

33
Q

What form of elasticity does a calculation of 1 illustrate

A

Unit Elastic

34
Q

What form of elasticity does a calculation of greater than 1 illustrate

A

Elastic demand or supply

35
Q

What form of elasticity does a calculation of less than 1 illustrate

A

Inelastic demand or supply

36
Q

What form of elasticity does a calculation of 0 illustrate

A

Perfectly inelastic demand or supply

37
Q

What shape does a perfectly inelastic demand curve show

A

Vertical

38
Q

At infinity, what is the level is elasticity

A

perfectly elastic

39
Q

Is a good that has many close substitutes more likely to an elastic or inelastic demand?

A

Elastic, consumers are likely to purchase substitutes if the price raises

40
Q

Is a necessity more likely to have a elastic or inelastic demand?

A

Inelastic demand

41
Q

Is a broadly defined market more likely to an elastic or inelastic demand?

A

elastic, many perfect substitutes

42
Q

How does time effect the elasticity of a market?

A

Goods tend to become more elastic over time as the market has more time to adjust.

43
Q

What is meant by Unit Elasticity?

A

When percentage change in quantity equals percentage change in price

44
Q

What formula should you use when calculating the elasticity?

A

The mid point method

45
Q

What is total revenue in a market?

A

The amount paid by buyers and received by sellers of a good

46
Q

How do you calculate total revenue in a market?

A

Price x quantity

47
Q

What is meant by Income elasticity of demand?

A

A measure of how much the quantity demanded of a good response to a change in consumer income.

48
Q

How do you calculate income elasticity of demand?

A

Percentage change in Q / Percentage change in income

49
Q

What is meant by cross elasticity of demand?

A

A measure of how much the quantity demanded of one good responds to a change in price of another good.

50
Q

How do you calculate cross price elasticity of demand?

A

Percentage change in Q of good 1 / Percentage change in p of good 2

51
Q

Does a substitute have a positive or negative cross price elasticity of demand?

A

Positive - because prices of both items & quantity demanded move in the same direction

52
Q

Does a complement have a positive or negative cross price elasticity of demand?

A

Negative- because used together the price increase on one results in the quantity demanded of the other reducing.

53
Q

What is a price ceiling?

A

A legal maximum on the price at which a good is sold

54
Q

What is a price floor

A

A legal minimum on the price at which a good can be sold

55
Q

When is a price ceiling binding?

A

The price ceiling is binding when it is set below the equilibrium price as it becomes a binding constraint on the market

56
Q

When is a price floor binding?

A

A price floor is binding when it is set above the equilibrium price

57
Q

What is the affect of a binding price ceiling on supply?

A

Shortage- the level of demand is higher than the level of supply

58
Q

What is the affect of a finding binding price floor?

A

Surplus- the level of supply is greater than the level of Q demanded.

59
Q

What are the negative affect of of both surplus and shortage?

A

They cause market inefficiencies such as;

Shortage - long lines

60
Q

What is meant by the term “tax incidence?

A

The study of who bears the burden of taxation

61
Q

What are the three steps for deciding how a tax on buyers affect the market outcomes

A

1) Decide wether the law affects the supply or demand curve
2) Decide which way the curve shifts
3) illustrate the changes in a S&D graph to examine the affects on the equilibrium

62
Q

What are the implications of taxation?

A

Both buyers and sellers share the burden of a tax

  • sellers receive less for a good
  • Buyers pay more for each good
63
Q

What are the affects of tax on a market?

A

Tax discourages market activity by reducing the quantity of a good sold.

64
Q

What is meant by the term “wedge” in reference to tax and subsidy

A

A wedge is the gap between what the buyer pays and what the seller receives

65
Q

What role does market elasticity play in regards to the burden of a tax

A

The burden of the tax falls more heavily on the side of the market that is less elastic as they have fewer good alternatives

66
Q

What is the definition of the term “subsidy”?

A

A payment from government to consumers or sellers for each unit of a good being bought or sold

67
Q

Why do Government use subsidies?

A

Used to encourage production and consumption

68
Q

Why do governments use tax’s

A

To reduce production or consumption

69
Q

How do you calculate the affects of a subsidy on a market

A

Use the 3 steps for analysing supply and demand

1) does it affect supply or demand
2) what way does the curve shift
3) illustrate the changes

70
Q

What are the implications of a subsidy?

A

1) Subsidy creates a wedge between price paid by consumers and price recover by sellers
2) benefit is shared between buyer and seller
3) costly for govt, have to be recouped through taxation

ECONS506 (1 decks)

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