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Prelim Economics > Markets > Flashcards

Markets Flashcards

1
Q

demand

A

the desire to consume goods and services in the economy

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2
Q

Law of Demand

A

There is an inverse relationship between price and quantity demanded

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3
Q

How price affects demand

A
  • if price goes up, demand falls
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4
Q

How Income affects demand

A

Increased income means that consumers can purchase newly afforded goods which increases demand.

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5
Q

How Population affects demand

A

the greater the population, the more demand for the total quantity of goods

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6
Q

How Tastes affect demand

A

Market trends and tastes change, so demand will too

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7
Q

How the Price of Substitutes affects demand

A

As the price of a substitute decreases, demand for the original good also decreases

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8
Q

How the Price of Complements affects demand

A

as the price of a complement increases, demand decreases for the original good

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9
Q

How Expected future prices affect demand

A

Predicting future price increases will increase current market demand

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10
Q

Movement along the curve

A

Movements along the curve happen due to the relationship between price and quantity

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11
Q

Shift of the curve

A

Shifts happen due to non-price factors, which means demand/supply changes regardless of price

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12
Q

Law of Supply

A

There is a direct relationship between price and quantity supplied.

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13
Q

How price affects supply

A

the higher the price and profit opportunity, the greater the incentive to supply

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14
Q

How the cost of factors of production affect supply

A

any change in the costs of one of the factors of production will change supply. If the cost of a resource used in supply increases, supply will decrease as the good is less profitable

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15
Q

How price of Substitutes affects supply

A

An increase in the price of one substitute good causes a decrease in supply of the original good

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16
Q

How price of complements affects supply

A

Increase in the price of a complement causes increase in the supply of the original good.

17
Q

How expected future prices affect supply

A

If the price is expected to fall, supply will also fall as potential profits have fallen

18
Q

How number of suppliers affects supply

A

When the amount of firms producing a good increases, supply increases

19
Q

Factors that Affect Supply

A

price/cost of factors of production/price of subs/price of complements/expected future prices/number of suppliers/technology

20
Q

Factors that Affect demand

A

price/income/population/tastes/price of subs/price of complements/expected future prices

21
Q

How technology affects supply

A

when the state of technology improves, the level of supply increases

22
Q

Equilibrium

A

The point at which quantity demanded and quantity supplied are equal

23
Q

Price Ceiling

A
  • below equilibrium

- results in a shortage of goods

24
Q

Price floor

A
  • Above equilibrium

- results in excess supply –> surplus

25
Q

Merit Goods

A

A good that the government believes is beneficial to society but may not be produced in adequate quantities. E.g. libraries and schools

26
Q

Public Goods

A

goods provided by the government as there is no profit incentive for the private sector. They are non-excludable and non-rival. e.g. roads and streetlights

27
Q

Non-Excludable

A

Nobody can be excluded from their consumption

28
Q

Non-rival

A

One persons consumption does not reduce the amount available for someone else to consume

29
Q

Externalities

A

spillover effects on third parties as a result of private activities. e.g. pollution, resource depletion

30
Q

Price Elasticity of Demand

A

How responsive consumers are to a price change

31
Q

Total Outlay method

A

revenue is calculated at different price/quantity points and then seeing if revenue has increased, decreased or remained the same allowing for elasticity to be determined

32
Q

Factors affecting elasticity of demand

A
  • necessities and luxuries
  • existence of close substitutes
  • proportion of income spent on the good
  • the length of time since a price change
33
Q

Price Elasticity of Supply

A

How responsive suppliers are to a change in price.

34
Q

Factors that affect price elasticity of supply

A
  • Durability
  • Production period
  • Spare Capacity
35
Q

Perfect Competition

A

large number of small firms with lots of competition, producing a homogenous product

36
Q

current unemployment rate

A

7.5%

37
Q

april u/e

A

5.2%

38
Q

market failure

A

when the allocation of goods and services is socially undesirable

Prelim Economics (6 decks)

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