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Economics > Micro 5 > Flashcards

Micro 5 Flashcards

1
Q

What is a command economy ?

A

Most resources are allocated by the state. The market mechanism plays a very small part.

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2
Q

Whats a mixed economy ?

A

More resources are allocated by the state in comparison to the free market. The key difference between free and mixed is the welfare and health care system.

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3
Q

Whats a free market economy ?

A

Majority of resources are allocated through markets rather than through government and planning. There are no examples of pure free markets but there are countries that have a great proportion of resources allocated by the market.

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3
Q

What is a market mechanism ?

A

bringing buyers and sellers together who agree on a price for the product or resource being sold

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4
Q

What is market equilibrium ?

A

A point at which the demand curve crosses the supply curve

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5
Q

What is market disequilibrium ?

A

Where there is an imbalance in the quantity supplied and quantity supplied. ( excess demand )

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6
Q

What is rationing ?

A

where scarce resources, price increases due to excess demand. This increase in price discourages demand and consequently ration resources. E.g plane ticket price might rise as seats are sold, this is a disincentive to some consumers to purchase tickets which will ration the ticket.

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6
Q

What is a price mechanism ?

A

resources are allocated through the price mechanism in a free market economy. The price will move resources where demand and remove resources where there is a surplus.

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7
Q

What is incentive ?

A

encourages a change in behaviour of a consumer or producer. E.g high price would encourage firms to supply more to the market because it is more profitable to do so

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8
Q

What is signalling ?

A

The price acts as a signal to consumers and new firms entering the market. The price changes where resources are needed in the market . A high price signals firms to enter the market , however this encourages consumers to reduce demand and therefore leave the market

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9
Q

What is equilibrium price ?

A

is the price at which demand equals supply and therefore all products will be sold. This is known as the market clearing price

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10
Q

What does elastic mean?

A

How responsive something is to the change in price

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11
Q

What is a PED?

A

measures the sensitivity of demand to a change in price

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12
Q

What is the formula for PED?

A

%change in demand DIVIDE percentage change in price

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13
Q

What is PED?

A

PED is a value not a %

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14
Q

What does it mean if PED has less than one ?

A

Price becomes inelastic

15
Q

What does it mean if the PED has more than one ?

A

Price becomes elastic

16
Q

What does price elastic mean ?

A

customers are sensitive to a change in price.

17
Q

What does price inelastic mean ?

A

customers are insensitive to a change in price.

18
Q

what happens if PED = 1

A

it becomes unitary demand

19
Q

What happens if PED = 0

A

It becomes perfectly inelastic

20
Q

What is PES?

A

Price elasticity of supply

21
Q

What is the formula of PES?

A

% change in price

22
Q

What does price elastic mean in terms of PES?

A

a change in price will lead to a more than proportional change supply

23
Q

What does price inelastic mean in terms of PES?

A

a change in price will lead to a less than proportional change supply

24
Q

What does it mean when PES > 1

A

supply is elastic

25
Q

What does it mean if PES < 1 ?

A

supply is inelastic

26
Q

What does it mean if PES = 1 ?

A

Unitary supply

27
Q

What does it mean if PES = 0 ?

A

Supply is perfectly inelastic

28
Q

What does a more elastic PES mean for a firm?

A

that the firm is more flexible in changing the supply of its products

29
Q

What are the factors affecting PES?

A

Spare capacity, level of stocks,Time scale

30
Q

What are factors influencing PES?

A

How substitutable factors are and Barriers to entry to the market

Economics (22 decks)

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