Module 1 Microeconomics Flashcards
Economics is:
the study of how people and groups of people use their resources
Microeconomics is:
It looks at the behaviour of individuals and businesses when making decisions
Macroeconomics is:
- Studies large-scale or general economic factors.
- It looks at the decision making, performance, structure and overall behaviour of the economy as a whole.
- This can relate to regional, national or even global economies.
What is perfect competion
- A large number of small buyers and suppliers
- Perfect information, where buyers have complete knowledge of alternatives and costs
- Interchangeable products
- No barriers to entry
- No transaction or switching costs
What is a monopoly?
one supplier dominating the market. Unless regulated, a monopoly can dictate prices due to a lack of alternatives.
What is an Oligopoly?
An oligopoly involves a small number of dominant suppliers in a market. These suppliers may collude, explicitly or implicitly, to protect their interests.
What is Monopolistic competition?
situation where there are many producers but, unlike perfect competition, products are not seen as homogenous and there are significant reasons other than price for customer choice.
What are the key factors in market analysis?
- Market size
- Customer preferences
- Segment analysis
- Seasonality
- Key competitors
- Economic factors affecting the market
- Emerging trends
What are the three market positioning strategies?
1) Cost leadership (appeal to cost conscious consumers)
2) Differentiation (Providing unique product or services compared to competitors)
3) Focus (focus on one specific market/consumer)
The law of demand states
as the price of a good increases, the quantity demanded decreases,
and vice versa.
There are three factors which help to explain the law of demand:
- The Law of Diminishing Marginal Utility
- The Income Effect:
- The Substitute Effect:
What is the Law of Diminishing Marginal Utility?
As consumers acquire more units of a product, the additional benefit of each unit decreases, reducing the price they are willing to pay
What is the Income Effect?
Limited income constrains consumers from buying more units as prices rise.
What is the Substitute Effect?
Consumers switch to substitute products as prices of the original product increase.
What is the supply curve?
The supply curves exhibit a positive slope. This means that as prices increase, the market becomes
more appealing to suppliers, encouraging them to allocate resources towards producing a higher
quantity of the good.
What is demand elasticity?
Refers to how sensitive demand is in response to a change in another variable, such as price.
price elasticity of demand (PED) =
% (change in price)
=
(P2-P1)/P1
What does inelastic mean when referring to PED?
PED < 1
What does elastic mean when referring to PED?
PED > 1
What is the relationship between price elasticity of demand and total revenue?
- If PED > 1, then total revenue will increase when price is lowered
- If PED = 1, then total revenue will be unaffected by a change in price
- If PED < 1, then total revenue will fall when price is lowered
cross price elasticity of demand =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝐵
What is income elasticity of demand?
IED =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒
Price Elasticity of Supply =
% change in price
When PES > 1 supply is
ELASTIC
