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econs(micro) > markets > Flashcards

markets Flashcards

1
Q

What is Price Mechanism?

A

The use of price signals to allocate scarce resources among competing uses

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2
Q

What is Demand?

A

Demand is the amount of a good or service that consumers are both willing and able to buy at each possible price in a given period of time, ceteris paribus

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3
Q

What is ceteris paribus?

A

refers to the assumption that every other variable that affects the demand of a good or service remains constant

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4
Q

What is Quantity Demanded?

A

refers to a particular quantity that the consumer is willing and able to buy at a particular price, as reflected by a point on a given demand curve

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5
Q

What is the Law of Demand?

A

The Law of Demand states that in a given time period, the quantity demanded of a product is inversely related to its price, ceteris paribus.

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6
Q

What is Individual Demand?

A

The demand of one consumer

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7
Q

What is Market Demand?

A

Market Demand is the sum of the individual demands of all consumers in the market

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8
Q

What causes a change in Demand?

A

A change in Demand is due to changes in non-price determinants and is represented by a shift of the demand curve.

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9
Q

What causes a change in Quantity Demanded?

A

A change in Quantity Demanded is caused by changes in price and is represented by a movement along the demand curve

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10
Q

How do you illustrate an increase in demand on a demand curve? And what does it illustrate?

A

An increase in demand on a demand curve can be represented by a rightward shift. This illustrates that at each and every price, there is now an increase in quantity demanded.

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11
Q

How do you illustrate a decrease in demand on a demand curve? And what does it illustrate?

A

A decrease in demand on a demand curve can be represented by a leftward shift. This illustrates that at each and every price, there is now a decrease in quantity demanded.

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12
Q

What are the 8 non-price determinants?

A

Consumers’ income; prices of related goods; consumers’ tastes and preferences; consumers’ expectations; ease and cost of borrowing; size and composition of population; seasonal factors; and government policies.

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13
Q

What does Disposable Income refer to?

A

Disposable income (Yd) refers to income after deducting income taxes and adding benefits/transfer payments.

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14
Q

What are Transfer Payments?

A

Transfer Payments are welfare payments made available through a country’s social security system.

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15
Q

What is YED?

A

Income Elasticity of Demand

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16
Q

What is the definition of Income Elasticity of Demand (YED)?

A

Income Elasticity of Demand measures the degree of responsiveness of demand for a good to a change in consumers’ income, ceteris paribus.

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17
Q

What is XED?

A

Cross elasticity of demand

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18
Q

How do you determine whether something is income elastic or income inelastic?

A

When 0<YED<1, it is income inelastic. When YED>1, it is income elastic.

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19
Q

What is the definition of Cross Elasticity of Demand (XED)?

A

Cross Elasticity of Demand measures the degree of responsiveness of demand for Good Y to a change in the price of Good X, ceteris paribus.

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20
Q

What does XED measure on the graph?

A

XED measures the extent of horizontal shift in the demand curve of good x in response to changes in the price of Good Y

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21
Q

When would XED>0

A

When two goods are substitutes

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22
Q

When would XED<0

A

When two goods are complements

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23
Q

When would XED=0

A

When two goods are independent of each other in terms of one’s demand in relation to the price of the other good.

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24
Q

What is the relationship of XED when its magnitude is >1

A

Weak relationship

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25
Q

What is the relationship of XED when its magnitude is <1

A

Close relationship

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26
Q

How do you determine cross inelastic demand

A

when magnitude of XED is <1

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27
Q

How do you determine cross elastic demand

A

when magnitude of XED is >1

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28
Q

What is Derived Demand

A

Derived Demand is the demand for a factor of production that results from the demand of a final good. e.g. increased demand for mobile phones results in rise of demand for OLED screens

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29
Q

What is EGYPTS?

A

E: Expectations of Prices & Income, Ease of Borrowing. G: Government policies. Income (Inferior and Normal Goods based on YED). P: Price of Related Goods (Substitute and Complementary Goods based on XED & Derived Demand) + Population Size/ Composition. T: Taste and Preferences. S: Seasonal Factors (Weather and Festivities).

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30
Q

What is the definition of supply?

A

Supply is defined as the amount of a good or service that producers are both willing and able to sell at each possible price in a given period of time, ceteris paribus.

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31
Q

What is Quantity Supplied?

A

Quantity Supplied refers to a quantity offered for sale at a particular price, as reflected by a point on a given supply curve

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32
Q

What is the formula for profit?

A

Profit= Total Revenue-Total Cost

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33
Q

What is the Law of Supply?

A

The law of supply states that in a given time period, the quantity supplied of a product is directly related to its price, ceteris paribus.

34
Q

What is the definition of Individual Supply?

A

Individual Supply refers to the supply of one producer.

35
Q

What does the Supply Schedule represent?

A

It represents the relationship between price and quantity supplied in a table.

36
Q

What is the definition of Market Supply?

A

Market Supply is the sum of the individual supplies of all the producers in the market.

37
Q

What does higher prices increase?

A

The ability to supply a good or service

38
Q

Why do marginal cost of production increase as more of a good is produced?

A

When a producer increases output, each additional unit of good or service is increasingly costly as factors of production become increasingly scarce.

39
Q

What causes a change in Supply?

A

It is due to changes in non-price determinants and is represented by a shift of the supply curve

40
Q

What causes a change in Quantity Supplied?

A

It is caused by changes in price and is represented by a movement along the supply curve.

41
Q

What is the definition of Competitive Supply?

A

Goods in Competitive Supply are those that use similar resources for production.

42
Q

What is the definition of Joint Supply?

A

Goods in Joint Supply are goods that are also produced when the other is produced.

43
Q

What is Subsidies?

A

Subsidies lower costs of production, and increase their profits and incentive to produce by producers. This would increase supply and supply curve shifts to the right.

44
Q

What is Wage Rate

A

Wage Rate is defined as the compensation of labour per period of time.

45
Q

What do Wages refer to

A

The total payments for the services rendered by labour.

46
Q

What is Occupational immobility

A

It is people not being able to move from one job to another due to the lack of relevant skills

47
Q

What is Geographical immobility

A

It is people having difficulty moving from one job to another in another part of the country (e.g. strong family ties, long geographical distance)

48
Q

What is Signaling function

A

Changes in prices provide information to producers and consumers about changes in market conditions

49
Q

What is Incentive function

A

Changes in prices provide incentives for producers to reallocate their scarce resources

50
Q

What is Rationing function

A

Changes in prices enable scarce resources to be rationed to the parties who are most willing to pay.

51
Q

What is Price Elasticity of Demand (PED)

A

PED measures the degree of responsiveness of quantity demanded of a good to a change in its price, ceteris paribus.

52
Q

What happens when PED<1

A

Demand is price inelastic- A change in price leads to a less than proportionate change in quantity demanded, ceteris paribus.

53
Q

What happens when PED>1

A

Demand is price elastic- A change in price leads to a more than proportionate change in quantity demanded, ceteris paribus.

54
Q

What happens when PED=0

A

Demand is perfectly price inelastic- No change in quantity demanded in response to a price change change in price, ceteris paribus

55
Q

What happens when PED=1

A

Demand is unitary (unit) price elastic- A change in price leads to a proportional (equivalent) change in quantity demanded, ceteris paribus

56
Q

What are the determinants of PED?

A

Acronym: THIS ( Time period, Habit forming goods/addictive goods/Necessities, Proportion of Income, degree and availability of Substitutes)

57
Q

What is Total Revenue (TR)?

A

Total Revenue (TR) refers to the total receipts or total earnings received by producers from the sale of goods and services.

58
Q

How can TR be calculated?

A

TR = Price of the good + Quantity Demanded at that price

59
Q

What are the determinants of the price elasticity of demand? (THIS/SNIT)

A

Time period, Habit forming goods/Addictive goods/Necessities, Proportion of income spent, Degree and availability of substitutes

60
Q

What are the non-determinants of supply? (WETPIG)

A

Weather and Seasonal factors, Expectations of producers, Technology, Price of related goods (Joint/Competitive supply), Input prices, Government policies

60
Q

What is Ad Valorem Tax?

A

Tax as a percentage of the price of the good

61
Q

What is Price Floor?

A

A legally established minimum price

62
Q

What is Price Elasticity of Supply (PES)?

A

The Price Elasticity of Supply (PES) measures the degree of responsiveness of quantity supplied of a commodity to a change in its price, ceteris paribus.

63
Q

What is Specific tax?

A

A specific tax or per unit tax is a fixed amount of tax per unit of a good

64
Q

What is a subsidy?

A

A subsidy is an amount of money given to the producers for each unit they sell

65
Q

What is Feasibility?

A

Refers to the extent which the policy can be carried out by the government

66
Q

What is Effectiveness?

A

Refers to the extent to which the policy, if implemented, can solve the problems or can achieve the stated goal/meet the objectives of the policy maker

67
Q

What is Addressing Root Cause?

A

Refers to whether the policy is tackling the root cause of the problem or simply targeting the symptoms

68
Q

What is Side effects?

A

Refers to any unintended consequences (positive and negative) the policy might have on other objectives of the firm or govt adopting the policy or measure in others, the conflict of goals

69
Q

What is Time Lag?

A

Refers to how long it takes for the policy to take effect

70
Q

What does the acronym FEAST stand for?

A

Feasibility, effectiveness, Addressing root cause, side effects, and time lag

71
Q

What are the various types of government policies?

A

-Price controls
-Quantity controls
-Taxes and subsidies

72
Q

Why would the government impose price controls?

A

When the government imposes price controls, it usually aims to reduce large fluctuations in prices and prevent extreme prices for certain essential goods, such as water and agricultural products, in the interest of consumers and producers.

73
Q

What is a Price Floor?

A

An effective Price Floor is a legally established minimum price above the market equilibrium price

74
Q

What are the uses of PED for Producers?

A

-Pricing strategies
-Marketing strategies
-Timing on decisions

75
Q

What are the uses of PED for the Government?

A

-Raising revenue
-Reducing consumption

76
Q

How does YED help producers to estimate the future size of the market and the potential changes in demand for their product?

A

a) Production strategies
b) Marketing strategies

77
Q

Should incomes rise, what should producers do to maximise TR? (marketing and production strategies)

A

Production strategy:
-Increase stock of normal and luxury goods
-Expand existing number of retail outlets selling normal goods, especially luxury goods
-Firms should reduce stock of inferior goods and change production to normal goods (if possible)

Marketing strategy:
-Use marketing strategy to alter consumer’s perception of products and make the demand more elastic

78
Q

Should income fall, what should producers do to maximise TR? (marketing and production strategies)

A

Production strategy:
-opposite of when incomes rise

Marketing strategy:
-Firm selling normal goods should advertise their products as “value for money” to reduce YED value

79
Q
A

econs(micro) (6 decks)

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