How Markets Work? Flashcards
What are the Factors of Production?
Land, Labour, Capital and Enterprise.
Describe Production Possibility Diagrams.
Curve shows point where all resources are used. Closer to each side more of that good made. Below curve is recession and beyond is impossible.
Define Opportunity Costs.
By taking one item, you lose the ability to have alternative. If you have 50p and buy Mars then no longer have money for Twix.
Define Demand.
Inverse relationship between price and quantity.
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Income, substitutes, technology/trends, compliments, weather and advertising.
What is Effective Demand?
Demand backed by ability to pay.
Define Supply
High price attracts firms into the market, giving increased quantity. As price fall inefficient producers force out, decreased quantity.
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Production, Technology, Taxes and Subsidy.
How do the curves shift curve shift?
Increase is right and decrease is left.
How does price affect the curve?
Movement along the curve.
What is Equilibrium?
Price consumers are willing to pay and producers willing to sell. Is also where supply and demand curve crosses.
Equation for Elasticity of Supply.
% difference of Quantity Supplied / % difference of Price
What are the outcomes of elasticity of supply?
Less than one is in elastic and greater than one is elastic.
Factors that effect elasticity of supply.
Space Capacity, Time Period, Materials, Ease of Switching and Capital Intensive.
What are the outcomes for Price Elasticity of Demand?
Greater than one is elastic and less than one is in elastic.
Equation for Cross Elasticity of Demand.
% difference of Quantity Demand / % difference of Price
What are the outcomes for Cross Elasticity of Demand?
Positive is a Substitute product and Negative is a Complementary product.
Equation for Elasticity of Demand
% difference of Quantity Demand / % difference of Income