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Micro economics > Price determination in a competitive market > Flashcards

Price determination in a competitive market Flashcards

1
Q

Demand

A

the quantity of a good/service that consumer are willing and able to buy at a given price, at a particular time

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2
Q

demand curve

A

shows the relationship between price and quantity demanded

a decrease in price from pe to p1 causes a extension in demand rises from qe to q1

an increase in price from pe to p2 causes a contraction in demand from qe to q2

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3
Q

income effect

A

if price falls to the amount a consumer can buy with income increase so demand increases

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4
Q

substitution effect

A

a fall in price of a good makes it cheaper than other goods so consumers will increase demand for a cheaper good and reduce demand for the expensive good

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5
Q

factors which cause a shift in demand-normal goods

A

people will demand more if real income increases shifting to the right

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6
Q

factors which cause a shift in demand-inferior goods

A

if real income increase demand will decrease shifting to the right

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7
Q

factors which cause a shift in demand-more equal distribution

A

demand for luxury goods decrease demand for other goods increase

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8
Q

PED

A

Price elasticity of demand is measure of how quantity demanded responds to a change in price

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9
Q

PED equation

A

Percentage change in quantity demanded / percentage change in price

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10
Q

PED being elastic

A

a percentage change in price will cause a larger change in quantity demanded

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11
Q

PED being inelastic

A

a percentage change in price will cause a smaller change in quantity demanded

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12
Q

YED

A

income elasticity of demand measures how much the demand for a good changes with real income

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13
Q

YED equation

A

percentage change in quantity demanded of a good/ percentage change in real income

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14
Q

XED

A

Cross elasticity of demand is a measure of how quantity demanded of one good responds to the change in price of another good

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15
Q

XED equation

A

percentage change in quantity demanded of good A/ percentage change in price of Good B

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16
Q

factors influencing PED-subsitutes

A

the more substitutes a good has the more price elastic it is

17
Q

Factors influencing PED-type of good

A

demand for goods which are essential items, non essential items, for habit forming and for several different uses are inelastic

18
Q

Factors influencing PED-income spent on good

A

demand for products that need a large proportion of the consumer income is more price elastic than goods which need a large proportion of income

19
Q

relationship between revenue and PED

A

if theres elastic demand then a reduction in price will increase revenue and a increase in price will reduce revenue

if theres inelastic demand then a reduction in price will reduce revenue and a increase in price will increase revenue

20
Q

relationship between income elasticity between normal and inferior goods

A

normal goods-as income rise, demand increases, the size of demand increase is dependent on the products elasticity

inferior goods- as income rises demand falls, a rise in income will lead to inferior goods being replaced

21
Q

relationship between cross elasticity of demand- complementary and subsitute goods

A

substitutes have positive XED- a decrease in price of on substitute will reduce the demand for the other

complementary goods have negative XED- an increase in the price of a good will reduce in demand for its complements

22
Q

supply

A

is the quantity of good or service that producers supply at a given price

23
Q

supply curve

A

the relationship between price and quantity supplied

an increase in price from Pe to P1 causes an extension in supply increasing from Qe to Q1

a decrease in price from Pe to P2 causes a contraction in supply from Qe to Q2

24
Q

Factors causing a shift in the supply curve

A

changes in costs of production-increase in costs decrease supply

improvements in technology-this can increase supply

changes to factors of production- increase in productivity of one factor increases output

25
Q

PES

A

price elasticity of supply is a measure of how quantity supplied of a good responds to a change in price

26
Q

PES equation

A

percentage change in quantity supplied/percentage change in price

27
Q

PES being elastic

A

a percentage change in price will cause a larger change in quantity supplied

28
Q

PES being inelastic

A

a percentage change in price will cause a smaller change in quantity supplied

29
Q

factors affecting PES

A

unemployment- increase elasticity

perishable goods- have inelastic supply cause they cant be stored for long

high stock level- firms with high stock levels have elastic supply

30
Q

equilibrium point

A

where supply and demand meet

31
Q

disequilibrium point

A

when supply and demand arent equal, when theres excess demand and supply

32
Q

excess supply

A

when quantity supplied is greater than quantity demanded

33
Q

excess demand

A

when demand for a good or service is greater than supply

34
Q

Shifts in demand and supply changing the market equilibrium

A

a shift in demand will cause price to increase or decrease and supply to shift creating a new equilibrium

a shift in supply will cause a change in price causing demand to shift creating a new equilibrium

35
Q

joint supply

A

where production of one good or service involves the production of another, if price increases then the supply of it or any joint products will increase

36
Q

composite demand

A

when goods have more than one use

37
Q

derived demand

A

when the demand for one good or factor of production is used in making another good

38
Q

Law of diminishing marginal utility

A

as consumption increases utility decreases.

it causes the demand curve to slope downwards as increase in price decreases quantity demanded

Micro economics (8 decks)

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