micro chapter 3 Flashcards
what are 3 non-price factors that may influence your demand for a good or service
.disposable income
.price of other goods
.personal preference
what is joint demand
demand for goods that are dependent such that they are demanded together
what is composite demand
demand for a good that has multiple uses
what is competitive demand
demand for goods that are in competition with each other
define ceterius peribus
meaning ‘all other thing equal’ and is used when we examine one variable while holding other influences
what is the law of demand ( and therefore the demand curve relationship)
there is an inverse relationship between quantity demanded and the price of a good or service ceteris paribus
what does the demand curve actually show
a graph showing how much of a good will be demanded by consumers at any given price
what will a shift in price (only) cause the demand curve to do
shift in price , ceterius paribus will cause movement along the demand curve, extension or contraction
what will a change in non-price factors ceterius paribus cause on the demand curve
it will cause a shift, moving the entire demand curve inwards or outwards
what factors cause demand curve to SHIFT (5)
.change in disposable income
.change in trends/preferences
.advertising
.changes in prices of substitute goods
.changes in prices of complementary goods
.changes in population
.seasonal factors
define a nominal good
good where the quantity demanded increases in response to an income in consumer good (organic food, luxury clothes, advanced tech)
define inferior goods
goods where the quantity of demand decreases in response to an increase in consumer income
what will happen to demand curve of normal goods when income increases
increase in disposable income will cause an outward shift
what will happen to demand curve of inferior goods when income increase
increased disposable income will shift the demand curve inwards as more people can afford other more expensive options
define consumer surplus
is the difference between the total amount that costumers are willing and able to pay for a good or service and the market value (total amount they actually pay)
what will happen to consumer surplus if the price of a good increase
it will reduce the overall size of consumer surplus
What fav
-Productivity
-Indirect taxes
-Number of firms
-Technology
-Subsides
-Weather
-Costs of production
Define a normal good
Where the quantity increases in response to an increase in consumer income
Define an inferior good
Good where quantity demanded decreases when there is an increase in consumer income
6 influences on how much firms supply
COP
technology of production
Taxes and subsidies
Prices of related goods
Expected prices
Number of firms in a market
Define joint supply
When a firm produces more than one product together
Define competitive supply
Where firms can use its FOP to produce alternative products
What is excess supply
Situation where firms are willing and able to supply more than the quantity demanded by consumers
What is excess demand
Situation where quantity demanded at the going price exceeds quantity firms are willing and able to supply more than
What is excess demand
Situation where quantity demanded at the going price exceeds quantity firms are willing and able to supply
4 factors that effect a goods PED
availability of substitutes
Necessity or luxury
Proportion of income spent
Time period of price change
For XED when are the two goods substitutes
When answer is +
For XED when are the goods complements
When the value is -
Define market failure
Miss allocation of resources
What is marginal social benefit
Additional benefit gained by society from consuming an extra unit of good
Define marginal social cost
The cost to society of producing an extra unity of good
What are public goods
Goods that are non excludable and non rival
Therefor cannot be provided by private firms
What are merit goods
Goods believed to be under consumed in a free market because people are unaware of the full benefits
Demerit good?
Goods that are over consumed in a free market because people are unaware of the full costs
Define externality
Cost or benefit that is external to a market transaction therefore not accounted for in the market price
Define asymmetric information
Situation where participants in a market have better information about market conditions than others
5 examples of asymmetric info
Second hand car market
Pensions
Insurance
Education
Healthcare
Define moral hazard
What is a private good
Good once consumer by another other people can be excluded from consuming it
Explain free rider problem
When an individual cannot be excluded from consuming a good and so has no incentive to pay for its provision
what point is there allocative efficiency
When price = marginal social cost
What are quasi goods
A public good that sometimes shows pure characteristics of public goods (non rival non excludable) but sometimes shows characteristics of private goods
What is indirect tax
Tax levied on expenditure on goods or services
What’s direct tax
Tax charged directly to individuals as a component of income
When do market failures happen detailed
When price mechanism causes an inefficient allocation of resources
When price mechanism causes an inefficient allocation of resources
What is a public private partnership
Arrangement where government service or private business venture is funded and operated through a partnership
3 reasons for government intervention
Correct market failures
Improve economic efficiency
Redistribution of income
5 ways government can combat market failures
New laws
Trade restrictions
Subsidies
Tariffs
Taxes
What is ad valorem tax
Percentage tax
What is specific (unit) tax
Set tax per unit
What are the 4 types of market failures
Externalities
Public goods
Information asymmetries
Market powers (monopolies)
