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Micro Year 1 > Micro 1.1 > Flashcards

Micro 1.1 Flashcards

1
Q

4 Determinants of demand

A

RDI
Other products
Fashion
Expectations

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2
Q

Law of demand

A

Ceteris paribus, qd rises as price falls

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3
Q

Demand definition

A

The quantity of a product that consumers are able and willing to purchase at various prices over a period of time

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4
Q

Supply definition

A

The quantity that producers are willing and able to supply at any given price in a specific time period

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5
Q

Law of supply

A

Ceteris paribus, firms will be prepared to supply more goods at a high price

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6
Q

6 Determinants of supply

A 
Costs of production
Subsidies
Substitute prices
No. of producers in market
Expected price
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7
Q

Define Price mechanism

A

The phenomena of the interaction of the market forces of demand and supply to reach an equilibrium price and quantity in a market. Best allocation of limited resources is achieved

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8
Q

Reasons for irrationality

A

Addiction
Altruism
Information failure

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9
Q

What is consumer surplus

A

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually do pay

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10
Q

Where is consumer surplus on the diagram

A

The top triangle

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11
Q

What is producer surplus

A

The extra amount that a consumer is paid compared to what they would have accepted

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12
Q

Where is producer surplus on the diagram

A

The bottom triangle

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13
Q

An increase in supply -> __________ in consumer surplus

A

Increase supply

Increase in consumer surplus as price falls

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14
Q

Increase in demand -> _________ in producer surplus

A

Increase demand

Increase producer surplus

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15
Q

How do indirect taxes work

A

They internalise the external cost -> supply decreases -> negative externality is reduced

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16
Q

Example of an indirect tax

A

VAT

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17
Q

Hypothecation

A

When the tax revenue is spent on resolving the negative externality

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18
Q

Problems of taxes

A
  1. Setting the right tax
  2. Inelastic demand = Negative externalities will not decrease
  3. Producers may take tax and keep prices high
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19
Q

Define subsidy

A

A grant given by the government to producers to encourage production of a good or service

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20
Q

Burden of tax is only equally shared when ___________

A

PED = PES

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21
Q

When is the tax burden greater for producer

A

When PES is greater than PED

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22
Q

When is the tax burden greater for the consumer

A

When PED is greater than PES

23
Q

Define Ad Valorem tax

A

A tax that is not a constant amount per unit, but a % of the price. So as tax becomes larger, higher price is charged

24
Q

How does an ad valorem tax look different

A

Supply curve is steeper

25
Q

Benefit of subsidy gained by producer

A

Upper area

26
Q

Benefit of subsidy gained by consumer

A

Lower area

27
Q

Elasticity definition

A

Measures the responsiveness of one variable to a change in another

28
Q

What is the % change formula

A

Change / original x 100

29
Q

What is change in % change formula

A

New - original

30
Q

Inelastic meaning

A

Change in price has little influence on demand

31
Q

Elastic meaning

A

Change in price has huge impact on demand

32
Q

Unitary price elasticity

A

When % change in qd is equal to % change in price

33
Q

PED formula

A

% change in qd / % change in price

34
Q

Greater than 1

A

Elastic PED

35
Q

Less than 1 =

A

Inelastic PED

36
Q

Factors that determine the value of a PED

A
  1. No. of close substitutes
  2. Luxuries / necessities
  3. % of expenditure spent on goods
  4. Habit forming good?
37
Q

If a good has lots of close substitutes then it is..

A

Elastic as people will switch

38
Q

What is the PED of necessities

A

Inelastic

39
Q

YED definition

A

A measure of the responsiveness of the quantity demanded

40
Q

YED formula

A

% change in qd / % change in income

41
Q

Normal goods have a __________ YED

A

Positive

42
Q

Inferior goods have a __________ YED

A

Negative

43
Q

What is an inferior good

A

An inferior good is a good whose demand decreases when consumer income rises

44
Q

If YED is below 1 then it is __________

A

Inelastic (necessity)

45
Q

If YED is above 1 then it is _________

A

Elastic (luxury)

46
Q

Cross-price elasticity definition

A

Responsiveness of qd of one product in response the change in price of another

47
Q

Cross-price elasticity of demand formula

A

% change in qd of good x / % change in price of good y

48
Q

XED greater than 1 =

A

Close / strong relationship

49
Q

XED less than 1 =

A

Weaker relationship

50
Q

PES definition

A

A measure of the responsiveness in quantity supplied and a change in price

51
Q

PES formula

A

PES = Change in qs / Change in price

52
Q

PES is always ________ value

A

Positive

53
Q

Factors that effect PES

A

Spare productive capacity
Stocks of finished products
Ease of factor substitution
Time period + production speed

Micro Year 1 (11 decks)

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