Microeconomics

Question 1

what is microeconomics?

Answer 1

• Individuals and businesses
• Smaller scale
  > How does a veterinary hospital function
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• How decisions are made
• How scarce resources are allocated
• How individuals/businesses interact, react, and respond

Question 2

what is macroeconomics?

Answer 2

• Governments, banks, international finance
• Aggregate and economy-wide
• Larger scale
  > Veterinary spending as a percent of retail spending

Question 3

Examples of Microeconomic Situations

Answer 3

• Someone deciding which competing product to buy
• A business investing to expand
• Customer demand increasing because of
  lower prices
• Two businesses competing against each other in a market

Question 4

Scarcity - what is it? how important is it to economics?

Answer 4

• Key Principle of Economics
• All resources are limited, time, money, etc.
• Scarcity of resources means we need to make decisions
• Economics is the study of how scarce resources are allocated

Question 5

what are supply and demand?

Answer 5

• Demand is amount of a good/service consumers want to purchase across price points
• Supply is the amount of a good/service producers will provide across price points

Question 6

what direction does the supply curve go on the price vs. quantity graph? what about the demand curve?

Answer 6

• supply curve has positive slope
  > high price = incentive to produce more quantity, low price = incentive to produce less
• demand curve has negative slope
  > low price = large quantity purchased and vice versa

Question 7

what do supply and demand curves show?

Answer 7

• Show us the quantity demanded or supplied at various price points
• All else being held equal, economic curves show us how price changes quantities supplied and demanded
• Situations can change causing shifts to supply and demand curves

Question 8

shifts to demand curve come from:

Answer 8

• Changes in incomes, population and composition, tastes and preferences, and
  expectations can all shift demand
• Price of substitute or complement products changes

Question 9

factors that increase demand

Answer 9

• taste shift to greater popularity
• population likely to buy rises
• income rises (for a normal good)
• price of substitutes rise
• price of complements falls
• future expectations encourage buying

Question 10

factors that decrease demand

Answer 10

• taste shift to lesser popularity
• population likely to buy drops
• income drops
• price of substitutes falls
• price of complements rises
• future expectations discourage buying

Question 11

things that can shift the supply curve:

Answer 11

• Changes in natural conditions, input prices technologies, government policies, and expectations can all shift supply

Question 12

factors that increase supply

Answer 12

• favourable natural conditions for production
• a fall in input prices
• improved technology
• lower product taxes/ less costly regulations

Question 13

factors that decrease supply

Answer 13

• poor natural conditions for production
• a rise in input prices
• a decline in technology (not common)
• higher product taxes/ more costly regulations

Question 14

what is supply and demand equilibrium?

Answer 14

• Equilibrium is the point where supply and demand curves intersect
• Shows us the price where market will (likely) operate
• Predicts quantity supplied and demanded

Question 15

what happens if a market is outside of equilibrium, due to price being too high or too low?

Answer 15

• Economic pressure pushes market towards equilibrium
  > Invisible Hand
• If price is too high, suppliers will produce too much (surplus), encouraging them to lower prices to sell off good/service and produce less
• If price is too low, consumers will demand too much (shortage), encouraging suppliers to raise prices and produce more

Question 16

what is price elasticity? how does this relate to inelastic vs elastic goods?

Answer 16

• How responsive quantities supplied or demanded are to changes in price
• Inelastic goods/services do not see quantities change much with price
• Elastic goods/services see large quantity changes with price

Question 17

how does price elasticity change over time?

Answer 17

• Most goods/services are inelastic in the short term
• More elastic in medium to long term, as consumers and producers adjust

Question 18

how does quantity of demand change with elastic vs inelastic demand?

Answer 18

elastic demand - change in price has large change in quantity of demand

inelsatic demand - demand remains steady despite price changes

Question 19

is vet med an elastic or inelastic service? how do we know this?

Answer 19

• Relatively inelastic service
• Annual Pet Owner surveys
  > Pet spending one of the last areas to cut
  > Moderate price sensitivity
• Recent recession showed little downturn in veterinary spending

Question 20

how do taxes affect supply and demand?

Answer 20

• Taxes reduce quantity of good/service sold in the marketplace
• Increases price paid by consumers, will typically lower quantity demand
• Results in an inefficiency and deadweight loss
• May be a desirable outcome, depending on product (e.g., cigarettes)

Question 21

what is perfect competition?

Answer 21

• Many suppliers competing in a market
• Low or no barriers to entry
• Little differentiation between supplier products

Question 22

what is a monopoly?

Answer 22

• One supplier in a market
• Very high barriers to entry
• Reduces competition and can harm consumer wellbeing if not regulated
• Example: Drug patent

Question 23

what is an oligopoly?

Answer 23

• Small number of suppliers in a market
• Often high barriers to entry
• Firms can collude to set prices, explicitly or simply through their actions
• Example: Cell phone companies

Question 24

what is monopolistic competition?

Answer 24

• Many suppliers in a market
• Low barriers to entry
• Suppliers offer similar but not identical products, seek to differentiate them from one another

Question 25

what type of competition is present in veterinary medicine?

Answer 25

• Operates in a monopolistic competition
• Many veterinary hospitals, most independently owned, some owned by corporate consolidators
• Services are similar, but hospitals seek to differentiate them through pricing, communication, customer service, etc.