Economics AOS2 Flashcards
Define Market
A market is a place or situation where buyers and sellers of goods and services meet to exchange a good or service.
Characteristics of a perfectly competitive market
Many buyers and sellers
Little to no barriers to entry/exit
No product differentiation
Perfect information from buyers and sellers
Example: Farmers markets
Define demand
The willingness and ability of buyers or consumers to purchase a good or service given price
Law of demand
As the price of a product increases the total quantity demanded will decrease
Identify and define all of the non price factors that affect demand
Disposable income - Amount of money expendable after tax.
Substitute goods - A product that can easily be used in place of another
Complement products - Products that are typically consumed together (coffee and sugar)
Preferences - Tastes change over time with changing trends and attitudes
Population - A growing population will increase demand due to more people
Consumer confidence - Attitudes or expectations to a product or future of the economy
Gov intervention - Subsidies, taxes and regulation
Difference between a shift and movement along the curve
A movement goes along the demand or supply curve and is due to price.
A shift is the demand or supply curve moving due to non price factors.
Define supply
Supply is the willingness of producers to produce and or sell goods or services
Law of supply
If the price of product increases so will the total quantity supplied
Identify and define all of the non price factors that effect supply
Cost of production - Costs of labour, capital and raw materials
Technological change - Advance in technology increases the efficiency of production and its sale
Productivity growth - An increase in the efficiency of the business converting inputs into outputs
Climatic conditions - Climate and weather that impact a businesses ability to produce a variety of gods and services
Disruptions - Significant events such as war and Covid
Gov intervention - Subsidies, taxes and law/regulation
Describe and illustrating changes in supply and demand graph structure
Define the impact,
Link the cause to supply or demand (increasing or decreasing)
Describe what happens on the graph (Shift of demand and supply curve, unfavourable/favourable)
Describe the outcome of the change (Impact on equillibiram price and quantity).
Sample:
(Impact of rise in disposable income on market for luxury cars)
Disposable income refers to the amount of expendable income available after tax and fixed expenses. The impact of a rise in disposable income on the market for luxury cars would likely result see an increase in demand and a favourable shift of the demand curve to the right on the supply and demand curve (figure 1). Therefore, if supply remains constant, the impact of this change would result in a higher equilibrium price where price increases from P to P2 and the equilibrium quantity would increase from Q to Q2.
Define the equilibrium point
Point: Occurs when the quantity demanded is equal to the quantity supplied.
Define price mechanism
Price mechanism is where the forces of supply and demand directly determine the prices of commodities.
Define relative prices
A relative price is the price of a product measured in comparison to the price of another product
Explain how a rise or fall in relative price can impact resource allocation in an economy
Example: A price change can impact demand, this will change profitability and indicate to producers on their resource allocation.
Characteristics of monopolistic competition
Large number of buyers and sellers
Lack of homogenous products (Businesses try to differentiate themselves and look unique)
Little to no barriers to entry
Perfect information about products
Example: Restaurants, hair salons, household items, and clothing
Characteristics of an Oligopoly
Small number of buyers and sellers dominate market
High barriers of entry (Set up costs)
Imperfect information where suppliers possess more info about products
Example: Airlines, cars, Coles and Woolies
Characteristics of Monopoly
Only 1 seller dominates
Very high barrier to entry
Natural monopoly occurs when it makes sense for only one producer to operate in market
Example: AusPost
Define Market Power
The ability of any particular business (or group of businesses) to control or manipulate prices or quantities in a market
Compare levels of market power to market structures
Most competition and least concentration: Monopolistic competition
Least competition and most concentration: Monopoly
Explain relationship between level of market power and prices
As markets become more concentrated (and less competitive), there is a tendency for prices to increase.
As markets become more competitive, prices tend to be lower
Explain relationship between level of market power and resource allocation
Resources are allocated more efficiently in competitive markets, technical and allocative efficiency tend to be higher.
Less competitive markets can result in resources being under-allocated to a particular product, lower allocative efficiency and less pressure means lower technical efficiency.
Explain relationship between level of market power and living standards
Increased competition can lower prices and allow a greater access of products to consumers, increasing non material living standards.
Increased competition can lead to unethical practices such as labour and environmental exploitation, which could decrease non-material living standards.
Describe price discrimination
Price discrimination involves charging consumers different prices for the essentially same product. (First, business and economy class seats on a plane)
Describe multiple branding
Multiple branding is individual companies marketing their products under separate and distinct brand names. (Cocacola branding Fanta and Powerade different)
