Micro Flashcards
Determinants of supply
S- subsidies/ tax T- technology O- price of other goods R- cost of resources E- expectations for the future S- size of market
Determinants of demand
T- taste and preferences O- other related goods: substitutes and complements E- expectations for the future I- proportion of income S- size of market: n of consumers S- special circumstances
Difference between movement and shift
Movement along a curve is due to a change in price
Shift in price is due to a change in a factor
Movement along demand curve can be due to a shift in the supply curve
Total welfare
Consumer surplus
And
Produce surplus
PES
Measure of the responsiveness of producers to price changes
0-1 relatively one last
>1 relatively elastic
Mobility of factors of production
Amount of time following a price change
Primary commodities vs manufactured goods
PES
Primary commodities and manufactured goods
Primary commodities:
Very inelastic because resources cannot be quickly allocated towards raw materials
Manufactured:
More elastic supply since resources can more quickly mobilised to increase or decrease following a price change
PED
Measure the responsiveness of consumers to a change in price of a good or service
=0 perfectly inelastic
No QD change from change in P
<1 inelastic - relatively unresponsive
Change in QD < Change in P
= 1 unit elastic : proportional Change
> 1 elastic- relatively responsive
Change in QD > change in P
= infinity : perfectly elastic
Any change in P =infinite change in QD
Increase in P = no one will want to buy
DETERMINANTS OF PED
S n of substitutes available (fast food - very elastic)
Proportion of consumers income the price of a good represents (salt/
Movie ticket)
Luxury of necessity ?
A addictiveness- more inelastic
T amount of time following a price change
Revenue and PED
Increase price with inelastic = increase revenue
Increase price with elastic = decrease revenue
Decrease price with inelastic = decrease revenue
Decrease price with elastic = increase revenue
XED
Responsiveness of consumers of a particular good to a change in the price of a related good- sub or comp
-ve = complements
+= substitutes
FACTORS OF XED
Sub-stability
The more easily substitutable the two goods are the higher the coef (Pepsi and coke)
Dependence
How dependent are the consumers of one good on the good’s complement
(Buns and hamburgers) vs (fries and hamburgers)
The more dependent the higher coef
YED
The responsiveness of consumers of a particular good to a change in their own income
Direct + : normal G
Inverse -ve : inferior goods
0-1 relatively income inelastic
> 1 relatively income elastic
Price floor
Min price Above equilibrium Meant to help producers QS>QD = excess Decrease consumer surplus Producer surplus increases but they sell less + excess spoils/bought by gov Loss of welfare
Price ceiling
Maximum price Below equilibrium Apparently flats in NYC meant to help consumers QD
MARKET FAILURE
Production externalities Consumption externalities Public goods- non rivalrous/ excludable: not provided Common resources access Information asymmetry Abuse of monopoly power Income inequality
