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ECON Intro to market and market failures (Theme 1) > how markets work > Flashcards

how markets work Flashcards

1
Q

What is price determination

A

Where quantity demanded is equal to quantity supplied. This is known as price equilibrium or market clearing price

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2
Q

Where is the market clearing price shown on a graph

A

The intersection of the original demand line and supply line

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3
Q

Where is the new market clearing price shown on a graph

A

The intersection of the changed demand line and the supply line

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4
Q

What is the price elasticity of demand

A

The responsiveness of demand (hiw muxh does it change) after a change in the goods own price

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5
Q

What is the formula fir PED

A

Percentage change in QD ÷ Percentage change in Price

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6
Q

What does it mean to be elastic

A

Demand changes more than the price

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7
Q

What does it mean to be inelastic

A

Demand changes less than the price

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8
Q

What are factors that impact PED

A

.no of close substitutes
.price if product in relation to total income
.cost of switching between different products
.brand loyalty and habitual consumption
.necessity and luxury
.Time

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9
Q

The more the amount of close substitutes, the more…..the demand is

A

Elastic

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10
Q

If the % budget is high, demand is more…

A

Elastic

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11
Q

If the cost of switching is high, demand is more…

A

Inelastic

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12
Q

If levels of brand loyalty is high, demand is…

A

Less price elastic

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13
Q

Persuasive advertising can make demand price more….

A

Inelastic

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14
Q

Luxury goods are…

A

Elastic

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15
Q

Necessities are more…

A

Inelastic

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16
Q

More time is…

A

Elastic

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17
Q

Less time is…

A

Inelastic

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18
Q

If PED is 0, demand is…

A

Perfectly inelastic

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19
Q

How do you know if demand is inelastic

A

PED is between 0 and -1

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20
Q

If PED is -1, demand is…

A

Unitary elastic

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21
Q

How do you know if demand is elastic

A

PED is less than -1

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22
Q

What does the demand line have to look like to indicate that it is inelastic

A

Very steep

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23
Q

What does the demand line have to look like to indicate that it is elastic

A

Less steep

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24
Q

What does the demand line have to look like to indicate that it is unitary elastic

A

A inward curve

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25
Q

If a good is inelastic what do you have to do to the price to increase revenue

A

Increase price to increase revenue

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26
Q

If a good is elastic what do you have to do to the price to increase revenue

A

Decrease price to increase revenue

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27
Q

What is the Income Elasticity of Demand

A

Shows how responsive the demand for a product is to change in real income

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28
Q

What is the formula for YED

A

% change QD ÷ % change Real Price

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29
Q

What type of YED does normal goods have

A

Positive YED

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30
Q

What type of YED does inferior goods have

A

Negative

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31
Q

What type of correlation does the demand line for normal goods have

A

Positive correlation

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32
Q

What type of a correlation does the demand line for inferior goods have

A

Negative

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33
Q

What type of a good is it if the YED is greater than 1

A

Luxury good

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34
Q

What type of a good is it if the YED is greater than 0 but less than 0.5

A

Necessities

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35
Q

What is the cross price elasticity of demand

A

Measures the responsiveness of demand for good x following a change in the price of good y

36
Q

Relationship of XED with substitutes

A

With substitutes there is an increase in the price of one good (ceteris paribus) will lead to an increase jn demand for a rival product

37
Q

Relationship kf complementary goods and demand

A

A fall in one product causes an increase in demand for the complementary product

38
Q

What type of XED is substitute

A

Positive

39
Q

What type of a XED is complimentary goods

A

Negative

40
Q

When can you identify a close substitute

A

When XED value is closer to 1

41
Q

How to identify that a good is close complimentary

A

The XED value is closer to -1

42
Q

What is price elasticity of supply

A

It measures the relationship between the change in quantity supplied and a change in price

43
Q

What value shows that PES is elastic

A

Greater than 1

44
Q

What value shows that PES is in elastic

A

Less than 1

45
Q

How is elastic PES shown on a graph

A

Less steep line

46
Q

How is inelastic PES shown on a graph

A

Very steep line

47
Q

If supply is elastic, what does it allow producers to do

A

They can increase their output without a significant rise in costs or a time of delay

48
Q

If supply is elastic what affect does this have on firms

A

Firms will find it hard to change their production in a given period of time and rise more significantly

49
Q

What factors affect PES

A

.spare productive capacity
.ability to stockpile
.time period and production speed
.ease and cost of factor substitution

50
Q

If you have spare capacity, PES is…

A

Elastic

51
Q

If you can stockpile, PES is…

A

Elastic

52
Q

If factors are substitutable, PES is…

A

Elastic

53
Q

If it takes less time to produce, PES is…

A

Elastic

54
Q

Is elastic supply more or less volatile

A

Less volatile

55
Q

Is inelastic supply more or less volatile

A

More volatile

56
Q

What is the topic Behavioural economics about

A

The psychological reasonings behind certain habits and purchasing

57
Q

What is traditional economics

A

When consumers are always rational

58
Q

What is traditional economic behaviour affected by

A

.perfect knowledge
.maximum utility

59
Q

What is behavioural economics

A

Consumers are always irrational

60
Q

What is behavioural economics impacted by

A

.social learning
.inertia
.computational weakness

61
Q

What is computational weakness

A

Economics that are there but many people don’t understand the actual basis of it

62
Q

What are examples of computational weakness

A

Food labels, pension, financial markets and mobile deals

63
Q

What is herd behaviour

A

When we often make decisions based on those around us or to fit social norms

64
Q

What is bounded rationality

A

Suggests that consumers opt to satisfied rather than maximise

65
Q

What is habitual behaviour

A

Repeated purchasing as people prefer to carry on behaving as they have always done

66
Q

What is choice architecture

A

The layout of ho choices are presented and sequenced

67
Q

What is an example for choice architecture

A

Salad bar- put it before the hot food/main food, o that more people take more salad and m=be more healthy

68
Q

What is the new law associated with choice architecture

A

It is that chocolate bars can’t be presented/ sold near the till to prevent impulse buying

69
Q

What is intertia

A

You aren’t bothered to buy certain things so you buy others

70
Q

What is indirect tax

A

It is is a tax on expenditure that is imposed by the government that increases the supply costs faced by producers and so market prices rise, leading to a fall in demand

71
Q

What are examples of indirect taxes

A

VAT, health and environment tax (tobacco, landfill, plates ect…)

72
Q

What are direct taxes often used for

A

To correct market failure by lowering demand

73
Q

What are the 2 types of indirect tax

A

Specific tax and Ad Valoren tax

74
Q

What is specific tax

A

Set tax per unit

75
Q

What is Ad Valoren tax

A

Percentage tax

76
Q

What is the indidencen of tax

A

It denotes whether the consumer or producer gets the burden of payment

77
Q

How do u work it tax per unit, consumer and producer incidence (CI & PI)and total tax

A

Tax per unit= P1 - Pe
CI= P1 - Middle Price
PI= Middle Price - Pe
Total tax= Q1 x tax per unit

78
Q

Who is the tax absorbed by if the supply is demand is elastic

A

It is absorbed by the supplier

79
Q

Who is the tax absorbed by if the demand is inelastic

A

It is absorbed by the consumer

80
Q

What is a a subsidy

A

It is a form of government support that helps lower price and increase consumption of a good or service

81
Q

If demand is inelastic the subsidy is given to the….

A

Consumer

82
Q

If demand is elastic subsidy is given to the…

A

Producers

83
Q

What are the most common fields subsidies are given too

A

Environmental fields such as solar panels, electric cars ect…

84
Q

Why are subsidies given to train apprenticeships

A

Because companies don’t want inexperienced people working and also have to pay them so the gov gives them a subsidy as a form of incentive which leads to a decrease in business cost

85
Q

What are reasons why subsidies are generally given

A

.to help families
.to encourage output and investment in fledging sectors
.protect jobs in loss-making industries
.make healthcare and treatments more affordable

ECON Intro to market and market failures (Theme 1) (5 decks)

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