Micro LS10-13 Flashcards
Excess demand
When price of a good is lower than equilibrium price. More consumers want to buy the good than suppliers are willing to sell.
Excess supply
When quantity supplied exceeds quantity demanded at current price.
Direct tax
Tax levied directly on an individual or organisation
Indirect tax
Tax levied on a good or service
Specific tax
Causes parallel shift in supply curve. Same fixed amount at all prices e.g. fuel duty, beer duty
Ad valorem tax
Causes a non parallel shift in supply curve. Tax increases as amount sold rises. E.g. VAT, import tariffs
Why taxes
Governments impose taxes in order to raise government revenue and/or discourage certain economic activities
Subsidies
Subsidy: grant given by government to encourage production
Governments give subsidies to firms in order to encourage production.
PED
Measures the responsiveness of demand given a change in price
Price elastic (demand )
When a change in price causes a proportionally larger change in demand.
Determinants of PED
- number of substitutes
- necessity / luxury
- addictiveness
- time (to find alternatives)
- proportion of income spent on product
PED formula
%change in quantity demanded / %change in price
Determinants of PES
-time required to produce product
-level of spare capacity (FOP)
-number of stock/finished goods available
-time (time period)
-perishability of product
-obsolete stock
Consumer Surplus
Extra amount of money consumers are prepared to pay for a good or service above what they actually pay.
It is the utility or satisfaction gained from a good or service in excess of the amount paid for it.
Producer surplus
The extra amount of money paid to producers above what they are willing to accept to supply a good or service. It is the extra earning obtained by a producer above the minimum required for them to supply the good or service.
