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Micro Econ > Price determination in a competitive market > Flashcards

Price determination in a competitive market Flashcards

4.1c

1
Q

What does the demand curve show

A

The relationship between price and quantity demanded

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2
Q

Where is equilibrium price

A

Where demand meets supply

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3
Q

Competitive markets

A

Markets with a high number of buyers and sellers, good market information, easy barriers to E/E

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4
Q

Effective demand

A

Demand backed up by the ability to pay

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5
Q

What causes a shift in the demand curve

A

Changes in price
Disposable income
Changes in trends/fashion

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6
Q

Conditions of demand

A

Price of substitute goods
Price of complimentary goods
Personal income
Tastes + preferences
Population size

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7
Q

What would cause a rightward shift in demand

A

Increase in price of substitute
Fall in the price of complimentary good
Increase in disposable income
Successful advertising campaigns
Increase in population

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8
Q

Substitute good

A

Alternative goods that can be used for the same purpose

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9
Q

Complementary goods

A

Joint demand

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10
Q

Shifts

A

Increased demand = rightward shift
Decreased demand = leftward shift

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11
Q

Normal good

A

A good which demand increases as income rises and decreases when income falls (e.g: demand for branded good and cars increases as incomes rise)

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12
Q

Inferior good

A

Demand decreases as incomes rise (e.g: demand for bus travel and store branded foods decrease as income’s increase)

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13
Q

PED formula

A

PED = %change in QD ➗ % change in P

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14
Q

YED formula

A

YED= % change in QD ➗ % change in income

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15
Q

XED formula

A

%change in QD of good A ➗ %change in price of good B

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16
Q

PED = 0

A

Perfectly inelastic, change in price won’t affect the demand

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17
Q

PED = ♾️

A

Perfectly elastic, any change in price will lead to demand falling to 0

18
Q

PED>1

A

Elastic demand, small price changes lead to large quantity changes

19
Q

PED = 1

A

Unitary elasticity, equal changes in P&Q

20
Q

PED<1

A

Inelastic demand, large price changes lead to small quantity changes

21
Q

Factors determining PED

A

Substitutability
Percentage of income
Necessities or luxuries
Time

22
Q

What YED depends on

A

If the good is normal or inferior

23
Q

YED<0

A

Negative YED means the good is inferior

24
Q

YED>0

A

Positive YED means the good is normal

25
Q

Types of XED

A

Complimentary
Substitutes
An a sense of any discernible demand relationship

26
Q

What does the supply curve show

A

The quantity of a good or service that all the firms in a market plan to sell at a given price

27
Q

Profit

A

Total sales revenue - total cost of production

28
Q

Total revenue

A

Quantity sold x price

29
Q

Conditions of supply

A

Costs of production (wages, raw materials, energy and borrowing)
Technical progress
Taxes
Subsidies

30
Q

Price elasticity of supply

A

PES = %change in QS ➗ %change in price

31
Q

Elastic supply

A

PES is elastic when the supply curve intersects the y-axis

32
Q

Inelastic supply

A

PES is inelastic when it intersects the x-axis

33
Q

Unitary supply

A

PES is unitary elastic when the supply curve cuts through the origin

34
Q

Factors determining PES

A

Length of production period
Availability of spare capacity
Ease of accumulating stocks
Ease of switching methods of production
Time

35
Q

Excess supply

A

Where price level is above market equilibrium and supply exceeds demand

36
Q

Excess demand

A

Where price is below market equilibrium and the demand exceeds supply

37
Q

Joint supply

A

When one good is produced, another is produced as a byproduct from the same materials e.g: increased demand for beef and leads to a higher supply of leather produced

38
Q

Joint demand

A

Complimentary goods, sub goods. E.g: prise increase of a PS console leads to a fall in demand for PS controllers and a rise in demand for XBox consoles

39
Q

Composite demand

A

Demand for a good that has, more than 1 use, increased demand for one leads to a reduction in supply of the good for an alternative use

40
Q

Derived demand

A

The demand for a good occurs when a good is necessary for the production of other goods e.g: if demand for cars falls then so will the demand for engines and gear boxes

Micro Econ (5 decks)

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