Introduction To Markets And Market Failure Flashcards
What is ‘ceteris paribus’?
Latin for meaning that all other variables remain equal.
What is a positive statement?
Statements that can be proven to be true or false, can be supported or disputed using evidence.
What is a normative statement?
A statement that cannot be supported or refuted, they are opinions and judgements.
What is the basic economic problem?
There are infinite human wants but scarce resources.
What are the factors of production, and what do they relate to?
Land- natural resources
Labour- the workforce
Enterprise/entrepreneurship- innovation and taking risks to seek out profitable opportunities for production
Capital- the stock of manufactured resources used in the production of goods and services
What does utility refer to?
The satisfaction gained from consuming a product.
What does marginal mean?
Additional
What is the price mechanism?
The interaction of buyers and sellers in free markets enabling goods, services and resources to be allocated by prices.
What does a demand curve show?
The amount people are willing to buy at a given price.
What factors affect the demand curve?
Changes to income, population, fashion and changes to the price of other goods.
What does a supply curve show?
The amount firms are willing to supply at a given price.
What factors affect the supply curve?
Changes to the cost of production
Natural factors (e.g weather/disasters)
Government taxes and subsides
What is the equilibrium, and where is it found on a demand and supply diagram?
It is where all the product being supplied onto the market will be purchased, and is found where the demand and supply curve meet.
What is the price elasticity of demand?
The responsiveness of demand to a change in price.
What does it mean for a product to be elastic?
It means that the % change in demand is greater than the % change in price.
What does it mean for a product to be inelastic?
It means that % change in demand is less than % change in price.
What is the formula for working out Price elasticity of demand (PEOD)?
% change in quantity demanded ÷ % change in price
After working out the PEOD, if the answer is between 0 and -1, what is the relationship?
Inelastic
After working out the PEOD, if the answer is between -1 and infinity, what is the relationship?
Elastic
What is the gradient of a inelastic demand/supply curve?
Steep
What is the gradient of a elastic demand/supply curve?
Flat
What are five determinants of elasticity?
- Time period
- Number/closeness of substitutes
- Proportion of income taken up by the product
- Luxury/necessity
- Habit farming
What is the price elasticity of supply?
The responsiveness of supply to a change in price
How do you work out price elasticity of supply (POES)?
% change in quality supplied ÷ % change in price
