Micro Economics Flashcards
What is demand?
Demand is quantity demanded of a good or service at every possible price.
What refers to a particular price?
The quantity demanded.
What is supply?
Quantity supplied at all possible prices.
What does quantity supplied refer to?
Refers to good and service provided at particular price.
What is price elasticity of demand?
Price elasticityof demand is the percentage change in quantity demanded of good or service divided by percentage change in price of that good or service that brought about the quantity change.
What are major influences on demand?
Price of substitutes or complements, consumers’ income and advertising.
What does elasticity refer to? (
Elasticity refers to responsiveness of the quantity demanded (or supplied) to changes in related variable such as own price, income or price of substitute or complement.
Firms are assumed to have behaved in what way?
In a way to maximise profits.
What is opportunity cost?
Opportunity cost is amount any input would earn in bed its next best use.
What is supernormal profit?
Profit in excess of both measured costs and those associated with opportunity costs.
What is marginal cost?
Additional cost of producing one unit of output, and profits are maximised that output level when marginal costs marginal equals marginal revenue.
What is a production function?
Production function is maximum amount that can be produced by any given amount of inputs used in production.
What will influent the choice of production technique?
Choice of production technique influenced by relative input prices.
What shape are long run average totals cost curves?
U shaped
What happens to average costs in economies of scale?
Average costs fall
What happens to average costs in diseconomies of scale?
Average costs rise
In the long run what type of costs are spread over more units of output before production becomes too complex and costs rise?
Some fixed costs.
What output level do firms produce at?
Where MC equals MR
In the long run what level should AR and AC otherwise the firm would go out of business?
Average revenue must be greater than average cost
In the short run what costs will firms be concerned?
Short run firm will be concerned with covering variable costs. it should ignore fixed costs in its output decision.
What is perfect competition?
Perfect competition is the market situation where there are many buyers and sellers and no individual can influence the market price
What are the requirements for a competitive industry?
Large number of firms, each of which is small relative to industry size, a homogenous product made by each firm and no restriction on firms entering or leaving the industry
What is the supply curve?
Supply curve is quantity firm wishes tosupply at each price.
What is firms short-run supply curve?
Short run supply curve is the output level associated in the short run with different prices
What is finis long run supply curve?
In the long run the supply curve is the long run MC curve abovethe average total cost curve
What shape is industry supply curve it all firms and potential new entrants have the same cost curves?
Industry supply cure is horizontal coinciding with minimum point on LR-AC curve
What is the industry supply curve?
Industry supply curve is sum of all individual firms outputs at each price level
What is an industry with only one firm called?
Pure monopoly hence the industry is the firm and the only potential supplier
What demand curve does A monopolist face?
Monopolist faces downward sloping demand curve and thus MR will always be less than AR or price
Where dal’s profit maximising output occur?
Profit maximising output occurs where MC=MR
When are supernormal or monopoly profits possible?
Supernormal profits possible in long run since there is no possibility of new entrants forcing down profits
What is the supply curve of pure monopoly?
There is no supply curve for pure monopoly independent of the location of the demand curve
What is a natural monopoly?
Natural monopoly is one that experiences falling LRACs over a large range of output.
When does price discrimination occur?
Price discrimination occurs when a firm cancharge different prices to different customers.
What is monopolistic competition?
Monopolist competition is market structure in which an industry contains a relatively large number of fairly small firms and in which entry and exit to the industry is relatively easy.
In monopolistic competition who has significant pricing power?
In monopolistic competition no single firm has significant pricing power.
What is the relationship between business cycle and stock market performance?
Relationship between business cycle and stock market performance is highly variable although analysts can point to some regularity in sectoral returns over the cycle.
When analysing competitive forces and industry profitability Porter emphasised what five forces?
Porter’s five forces are the bargaining power of suppliers and that of buyers/ customers, the threat of substitutes and rivalry between current competitors.
What are the five phases of product lifecycle?
Introduction, growth, maturity and decline phases before yielding to obsolescence. The time scale will vary between products.
What is another techniquein assessing firms position?
Another technique in assessing firm position is SWOT - strengths, weaknesses, opportunities and threats.
What 4p’s are used when assessing firms competitive advantage and threats?
4Ps are product, place, promotion and price.
What are the extra 3 P’s?
Proposed to add people, process and physical evidence to reflect of importance services.
