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Economics > Microeconomics > Flashcards

Microeconomics Flashcards

1
Q

What is PES

A

Price elasticity of supply. This refers to the responsiveness of a market to change its supply based on a given change in price. An inelastic market will change its supply only a small amount for a given change in price whereas an elastic market will change its supply a large amount for a given change in price

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2
Q

What is relative price

A

Relative price is the price of a given object in relation to the price of another object. If the price of another object goes up then the relative price of the monitored item goes down despite not actually changing in price

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3
Q

What is a price signal

A

A price signal is the change in the relative price of a good or service. If an item becomes relatively more profitable then resources are likely to be allocated towards its production. This resources reallocation is in response to a price signal.

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4
Q

What is opportunity cost

A

Opportunity cost is the benefit forgone when choosing between two economic decisions. If you can choose to go to a concert or stay home and study and you choose to go to the concert then the time spent studying is your opportunity cost.

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5
Q

What is the law of demand

A

The law of demand states that if the price of a particular good or service rises the, the demand for said good or service will fall.

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6
Q

What is the law of supply

A

The law of supply states that if the price of a good or service increases en the quantity supplied by suppliers will also increase for that good or service.

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7
Q

What is relative scarcity

A

Relative scarcity is the basis for all economics in the world. It is he idea that all people have unlimited needs and wants but there is a limited amount of resources (ie not enough to accomodate all the desires)

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8
Q

What is Consumer sovereignty

A

Consumer sovereignty is the idea that whatever the consumer demands is what suppliers have to make. Since a business will not sell what consumers don’t want they are forced to bend to consumers wishes in order to maintain profits

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9
Q

What are the 4 types of markets

A

They are

  • pure competition
  • monopolistic competition
  • oligopoly
  • pure monopoly
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10
Q

What are the major features of a pure completion market

A

In pure completion all items are the same so there is no product differentiation Firms are price takers as raising prices will cause people to go to competitors. There is no advertising and it is very easy to enter the market

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11
Q

What are the major features of a monopolistic competition market

A

In a monopolistic completion market there is pedi t differentiation based on brand and brand loyalty plays a big part in who buys what. There is a lot of advertising in this type of market however it is still pretty easy to enter this type of market

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12
Q

What are the major features of an oligopoly market

A

In an oligopoly there are few firms (usually only 2-3) there is a lot of advertising in this ,armed however it is not as effective as in a monopolistic competition market. There is a sense of brand loyalty and for,s are often price givers (especially when there is collaboration). It is quite difficult to enter this type of market

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13
Q

What are the major features of a monopoly market

A

In a monopoly there is only one seller and many buyers.This means that since they are the only ones selling they can set whatever price they want (price setters). There is no advertising or brand loyalty in this type of market. It is also almost impossible to enter it.

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14
Q

What is market failure

A

Market failure is when the allocation of resources by a free market is not efficient. This means there is a way that the resources can be allocated that would benefit society more than the one currently practiced

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15
Q

What are the 5 main types of market failure present in society

A

They are

  • asymmetric information
  • overproduction of socially undesirable goods
  • underproduction of socially desirable goods
  • weak power
  • externalities
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16
Q

Define and explain market power (market failure) and how the government fixes it.

A

Market power is when either due to the presence of a monopoly, oligopoly or firms working together there is a very weak amount of competition. This creates higher prices and and firms become price givers.

This can be fixed by the government by deregulation of key markets or forcing completion

17
Q

Define and explain externalities (market failure) and how the government fixes it.

A

Externalities are costs or benefits experienced by a third party that is not present in the decision making during an economic choice. They are an example of market failure because extra resources (outside the original amount estimated) are consumed fixing them.

The government can fix this by internalising the externality (ie one of the original parties pays to take responsibility of the externality) or by cash subsidies

18
Q

Define and explain asymmetric information (market failure) and how the government fixes it.

A

Asymmetric information is when one side of an economic deal has more information on the subject than the other one. This can result in unwanted side effects that can consume extra resources.

The government often fixes this by opening up communication portals (Internet) or information regulation.

19
Q

Define and explain underproduction of socially desirable goods (market failure) and how the government fixes it.

A

Underproduction of socially desirable goods is when, in pursuit of profit, free markets fail to create enough of goods that the public needs. This is often due to needed goods not being profitable or in some cases even free.

Governments often fix this by cash subsides to make it more profitable to create these goods

20
Q

Define and explain overproduction of socially undesirable goods (market failure) and how the government fixes it.

A

Overproduction of socially undesirable goods is when, in the pursuit of profit, free markets create and excess Mount of goods that society does not need or want. This can create negative externalities as well.

Governments often fix this by taxing such items so demand drops and they become less profitable to produce

21
Q

What are pressure groups

A

Pressure groups are groups such as unions and activists that change a market or what’s produced to follow their agenda. LGBT, and environmentalists are examples of types of activists that may play a role in what is produced and how it is produced

22
Q

What is the production possibility frontier

A

The PPF is a type of graph that depicts what resources can be allocated and how much can be allocated in a particular market. Any point on the line is an efficient use, below the line is inefficient and above the line is not possible wi current technology

23
Q

What are the two types living standards

A

They are

  • material
  • non material
24
Q

What are non material living standards

A

Non material living standards are living standards based on the quality of life experienced by people, not by how much they own. Things such as crime rate, life expectancy and pollution are all examples of non material living standards measurements

25
Q

What are material living standards

A

These are living standards based on how much each person owns and how much they have access to. Measurements such as GDP per capita and disposable income are examples of material living standard measurements.

26
Q

What factors effect demand elasticity

A
  • type of item (necessities or wants)
  • substitutability (substitutable items are elastic)
  • short term (short term demand is usually more elastic)
  • cost and relative importance (expensive items are more elastic)
  • minor competent items (cheap complements to expensive items are inelastic)
27
Q

What factors effect supply elasticity

A
  • storability (long storage tends to be more elastic)
  • mobility and industry capacity (if production can be sped up or slowed down in a short space of time then it is more likely to be elastic)
  • time period (long term is more elastic)
28
Q

What is the invisible hand

A

The invisible hand is the name for the mechanism that corrects the equilibrium price in a market when there has been a change in either demand or supply.

29
Q

Factors that affect a change in position of the demand curve

A
  • change in income levels
  • changes based on seasonal needs
  • changes in tax rates
  • changes based on how fashionable an item is
  • changes based on advertising
  • changes based on population size and distribution
  • changes in interest rates
  • changes in anticipated change in price
  • changes based on substitute price
  • changes based on changes in price of compliment
  • changes in government regulation
  • changes in consumer confidence
30
Q

Changes that affect a change in the position of the supply curve

A
  • change in the cost of inputs
  • change in business tax
  • change in productivity levels
  • change in climatic conditions
  • change in bankruptcy rate
  • change in government assistance levels
  • change in interest rates
31
Q

What is PED

A

Price elasticity of demand. This refers to the responsiveness of a market to a change in the demand of a specific good or service. If a market is inelastic then the quantity will not change much for a change in demand. On the other hand an elastic market will change quantity a large amount based on a change in demand. These changes usually happen based on price signals

32
Q

What is an inefficient allocation of resources

A

An inefficient allocation of resources is when a nations resources are used across the economy in such a way that the countries living standards are not maximised

Economics (5 decks)

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