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MS STONE ECONOMICS > MICROECONOMICS > Flashcards

MICROECONOMICS Flashcards

1
Q

What is demand?

A

The amount that consumers are willing and able to buy at each given price point

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2
Q

What effective demand?

A

Demand backed by the ability to pay

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3
Q

What is an extension in demand?

A

Increases in quantity demand caused by falls in price

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4
Q

What is a contraction in demand?

A

Decreases quantity demand by on increase in price

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5
Q

What are the determinants of demand (ped)?

A
  • change in income
  • change in population
  • price of subs/complementary goods
  • trends
  • quality changes
  • Interest
  • consumer confidence
  • future prices
  • advertising
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6
Q

What is an inferior good?

A

As income rises demand falls

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7
Q

What is a normal good?

A

As income rises demand rises

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8
Q

What is a complementary product?

A

One that is consumed with another

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9
Q

What is a substitute good?

A

A good that can be used as an alternative to another

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10
Q

What is composite demand?

A

A good that is demanded for more then one purpose so that an increase in demand for one purpose reduces the supply for the other purpose

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11
Q

What is derived demand?

A

When the demand for one good comes from the demand for another good or service usually a component of another
(Labour is derived from goods and services)

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12
Q

What is price elasticity of demand?

A

Measures the responsiveness of quantity demanded to a change in price of the good

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13
Q

Is ped positive or negative?

A

Always negative - inverse relationship as price goes up, demand goes down.

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14
Q

What is price elastic demand?
What does a fall in price do to demand?

A

Below - 1
A fall in price means quantity demanded increases by proportionally more than the cut price

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15
Q

What does a fall in price do to revenue if its price elastic

A

Increases total revenue

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16
Q

What is price inelastic demand?
What does a fall in price do to demand?

A

Between 0 and -1
When prices fall quartiy demanded increases but by a smaller proposhen than the cut price

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17
Q

What does a fall in price do to revenue if its price inelastic?

A

Total revenue falls

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18
Q

What is perfectly price inelastic demand?
What does a change in price do to demand?

A

Ped = 0
When price changes there is no effect on quantity demanded

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19
Q

What does a fall in price do to revenue if its perfectly price inelastic?

A

Total revenue falls

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20
Q

What is perfectly price elastic demand?
What does a change in price do to demand?

A

Ped = infinity
A change in price eliminates all demand for the good

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21
Q

What is unitary price elasticity of demand?
What does a change in price do to demand?

A

Ped = -1
A change in price brings about the same proportionate change in quantity demanded

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22
Q

What does a fall in price do to revenue if its unitary price elastic?

A

Total revenue will remain the some from a price cut

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23
Q

What factors determine ped?

A

Availability of subs
Time
Luxury or necessity
Proportion of income spent on a good

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24
Q

What is yed?

A

Measures the responsiveness of quantity demanded to a change in income

25
Q

What is income inelastic of demand?

A

Between 1 and 0 or 0 and -1

26
Q

What is income elastic demand?

A

Above 1 or less than -1

27
Q

What good is a negative number (yed)?

A

Inferior good

28
Q

What good is a positive number (yed)?

A

Normal good

29
Q

What is Xped?

A

A measure of the responsiveness of quantity demanded of one good to a change in the price of another good

30
Q

When xped is positive the good is….

A

A substitute

31
Q

When xped is negative the good is….

A

A complement

32
Q

Xped for weak subs is?

A

Between 0 and 1

33
Q

Xped for strong subs is?

A

Above 1

34
Q

Xped for weak complements is?

A

Between 0 and -1

35
Q

Xped for strong complements is?

A

Less than -1

36
Q

When xped is 0….

A

The two goods are independent of each other

37
Q

What is supply?

A

The amount offered for sale by producers at each given price level

38
Q

What are the 3 functions of price?

A
  • rationing
  • incentivising
  • signalling
39
Q

What happens when prices rise (supply)?

A
  • consumers ration
  • producers incentivise
  • entrepreneurs enter price rise market
40
Q

What are the determinants of supply?

A
  • Cost of raw materials
  • technological improvements
  • Changes in labour productivity
  • Wage rates
  • joint supply
  • Subsides / taxes
  • weather
  • changes in number of firms
41
Q

What is joint supply?

A

Where on increase or decrease in the supply of one good leads to on increase or decrease in supply of a by product

42
Q

What is price elasticity of supply?

A

Measures the responsiveness of quantity supplied to a change in price

43
Q

How do you calculate pes?

A

% Change in quantity supplied ÷ % change in price

44
Q

What is price elastic in supply?

A

Pes > 1

45
Q

What is price inelastic in supply?

A

Pes < 1 but > 0

46
Q

What is perfectly inelastic supply?

A

Pes = 0

47
Q

What is perfectly elastic in supply?

A

Pes = infinity

48
Q

What is unitary price elastic in supply?

A

Pes = 1

49
Q

What are the factors affecting pes?

A
  • Time
  • availability of stocks or stock piling
  • Ease of switching between alts
  • availability of spare capacity
  • raw materials
50
Q

What is equilibrium?

A

The price at which demand is equal to supply and there is no tendency for change

51
Q

What is disequilibrium?

A

The price at which supply does not equal demand, there is likely to be a further change or reaction by buyers or sellers

52
Q
A
53
Q

What is joint demand?

A

Demand for one good is linked to the demand for another good.

54
Q

What is joint supply?

A

2 or more goods that derive from the same production process

55
Q

What are the uses of PED?

A
  • Determination of pricing I revenue impact
  • indication of competition faced
  • price setting
  • government decision on which goods to tax indirectly
56
Q

What are uses of XPED?

A
  • Marketing strategies eg. Bundles
  • if a competitor changes it’s price firms can work out the effect on demand
57
Q

What de uses of YED?

A
  • Effect of recession / growth on demand
  • business planning for product range
  • helps firms anticipate future demand
58
Q

What de uses of YED?

A
  • Effect of recession / growth on demand
  • business planning for product range
  • helps firms anticipate future demand

MS STONE ECONOMICS (12 decks)

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