How the market works Flashcards
The tools of analysis: What is the concept of demand?
Economists define the market demand as the set of possible prices per unit of the good and the quantities that would be demanded at each of those prices.
What are movements along and shifts of the demand curve?
If the price were to change, we would move to a new cell in the table or to a new point on the demand curve. If, however the price remains fixed but another economic variable affects demand (income for example) this would be shown by a shift of the demand curve to the right or the left. A rightward shift represents an increase in demand and a leftward shift represents a decrease in demand.
What is absolute advantage?
Absolute advantage is the ability of an individual, firm or country to produce more of a good or service than other produces using the same amount of resources.
What is Comparitive advantage?
Comparitive advantage is the ability of an individual, firm or country to produce a good or service at a lower opportunity cost than other producers.
Tools of analysis: The concept of supply.
Economists define market supply as the quantity that would be supplied to the market at each and every price assuming other things remain equal.
Whay would the supply curve shift?
The supply curve would change due to the following variables:
- prices of inputs
- technology
- Cost of borrowing
- expectation
Tools of analysis: What is market equilibrium
In a competitive or freely operating market, the market equilibrium price is the price at which the quantity demand equals the quantity supplied.
What is elasticity?
Elasticity is a measure of responsiveness used with demand and supply curves to come to more meaningful conclusions.
What is price elasticity of demand?
Price elasticity of demand is ameasure of the responsiveness in quantity demanded of a good to change in the price of that good.
What is price elasticity of supply?
The price elasticity of suypply (often just the elasticity of supply) is defined as the responsiveness in quantity supplied of a good to a change in the price of that good.
What is a price floor?
A price floor is a legally determined minimum price that sellers may receive.
What is a price ceiling?
A price ceiling is a legally determined maximum price that sellers may charge.
What is consumer surplus?
Consumer surplus is the difference between the highest price a consumer is willing and able to pay and the price the consumer actually pays.
What is producer surplus?
Producer surplus is the difference between the lowest price a firm would have been willing and able to to accept and the price it actually receives.
What is economic surplus?
Economic surplus is the sum of consumer and producer surplus. It is the net benefit to society from the production of a good or service and it is maximised at equilibrium in a competitive market.
