Micro 3/6 1st year Flashcards
what is market equilibrium
when supply equals demand and there is no tendency for market price to change
what is a supply surplus
where firms have unsold stock, and in order to clear it, they will be forced to lower prices
define excess demand
when demand exceeds quantity available to supply
explain the price mechanism
changes in demand or supply sends signals to producers to increase / lower prices
what is affected by taxes and subsidies (demand or supply curve)
supply
how does unit tax shift the supply curve
parallel inwards shift
how does a subsidy affect the supply curve
outwards shift
how do you measure the amount of unit tax on a graph
vertical distance between supply curves
how does the inelastic and elastic demand of a product affect how much unit tax is passed onto consumer
inelastic demand- producers pass most tax
elastic demand- producers unable to pass most tax
in what situation does the consumer buy
if market price is less than consumers personal price
what is the idea of consumer surplus
all consumers are charged the same price, but those willing to pay more than the actual price gain more utility and value the item more highly
what is the definition of consumer surplus
the difference between what a consumer is willing and able to pay for a good or service, and what they actually pay
what is the idea of producer surplus
a firm is willing to supply more at higher price, firm gets payed the same for all units but gets paid more than reservation price
what are reservation prices
they y axis on demand or supply diagrams
which triangle is consumer surplus
the one on top
which triangle is producer surplus
the one underneath
what is the definition of producers surplus
the difference between how much a producer is willing and able to supply for a good and what they are actually paid
total wellfare equation
consumer surplus + producer surplus
which surplus depends on PED
consumer
price elastic= low consumer surplus
price inelastic= high consumer surplus
which surplus depends on PES
producer surplus
price elastic= low producer surplus
price inelastic= high producer surplus
what are hard commodities
natural resources that must be mined or extracted
what are soft commodities
agricultural products
what are long run shifts in equilibrium
when all factors of production are variable
what are short run shifts in equilibrium
when at least one factor of production is fixed
what are the 6 interrelationships between markets
joint demand, competing demand, composite demand, derived demand, joint supply, competing supply
define joint demand
relationship between complementary goods (if the price of good x increases then the demand for good y decreases)
define competing demand
the relationship between substitute goods (if the price of good x increases then demand for good y increases)
define composite demand
demand for a good which has 2 uses
define derived demand
demand for a factor of production used in the production process
define joint supply
supply of a particular good leads to supply of a bi-product
define competing supply
a good can be put to more than one use, but employing it in one form means it cannot be used in the other way
