Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics MICRO > Price Determination in a Competitive Market > Flashcards

Price Determination in a Competitive Market Flashcards

1
Q

what is demand ?

A

the quantity of a good or service that consumers are willing and able to buy at a given price during a given period of time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what causes movement (extension, contraction) along the demand curve ?

A

a change in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what causes an extension along the demand curve, leading to QD increasing ?

A

fall in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what causes a contraction along the demand curve, leading to QD decreasing ?

A

rise in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what is the acronym for remembering the factors that cause a shift in demand ?

A

PIRATES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what does PIRATES stand for ?

A

Population
Income
Related goods
Advertising
Taste/ fashion
Expectations
Seasons

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what is diminishing marginal utility ?

A

as one extra unit is consumed the utility gained from that decreases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what is price elasticity of demand (PED) ?

A

the responsiveness of a change in demand to a change in price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what is the formula for PED ?

A

(%change in demand/ %change in price)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what does it mean if a product is elastic ?

A

high responsiveness to a change in d to a change in p

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what does it mean if a product is inelastic ?

A

low responsiveness to a change in d to a change in p

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what would the PED of a elastic product be ?

A

less than 1 (>1)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what would the PED of a inelastic product be ?

A

more than 1 (1<)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what would a perfectly elastic demand curve look like ?

A

completely horizontal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what would a perfectly inelastic demand curve look like ?

A

completely vertical

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what are the factors influencing PED ?

A

necessities
substitutes
addictiveness
proportion of income
durability of good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

how does indirect tax impact elastic goods ?

A

producers have to internalize the burden

prices rise, demand will fall

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

how does indirect tax effect the consumers purchasing the inelastic goods ?

A

consumers have to internalize the burden

prices rise, higher cost to pay

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

how does subsidies effect producers and consumers ?

A

producers - higher revenue

consumers- lower prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what is income elasticity of demand (YED) ?

A

is the responsiveness of a change in demand to a change in income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what is the formulae for YED ?

A

(%change in demand/ %change in income) x100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what is an inferior good ?

A

if income rises
demand falls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is a normal good ?

A

if income rises
demand rises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what is a luxury good ?

A

if income rises
demand rises significantly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

what is cross elasticity of demand (XED) ?

A

is the responsiveness of a change in demand of good X to a change in the price of good Y.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

what is the formulae of XED ?

A

(%change in demand of good X/ %change in price of good Y) x100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

what is a complementary ?

A

price increases of good X
demand falls of good X&Y

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

what is a substitute ?

A

price increases of good X
demand increases of good Y

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

what is supply ?

A

is the quantity of a good or service a producer is willing and able to supply at a given price during a given time period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

what causes a change in quantity supplied ?

A

price of FOP

31
Q

if there is an outward shift in supply what does that mean ?

A

more goods are supplied at a given price

32
Q

if there is an inward shift in supply what does that mean ?

A

less goods are supplied at a given price

33
Q

what is the acronym for factors that cause a shift in supply ?

A

PINTSWC

34
Q

what does PINTSWC stand for ?

A

Productivity
Indirect taxes
Number of firms
Technology
Subsidies
Weather
Costs of production

35
Q

what is effective demand ?

A

demand whereby the customers can actually afford the good or service, they have the ability to pay.

36
Q

what is ineffective demand ?

A

demand whereby the customers cannot actually afford the good or service, they don’t have the ability to pay.

37
Q

what does the law of demand state ?

A

that there is an inverse relationship between price and quantity demanded

when price falls, QD rises
when price rises, QD falls

38
Q

what is the supply curve a graphical representation of ?

A

the price and quantity supplied by producers

39
Q

why is the supply curve upward sloping ?

A

because as the price of goods and services increases, the profits of the firms supplying these goods will increase. As a result, suppliers are more willing and able to supply a greater quantity.

40
Q

what does the law of supply state ?

A

that there is a positive relationship between price and QS

41
Q

in a market system, how are prices determined ?

A

by the interaction of demand and supply

42
Q

what happens at the market equilibrium price ?

A

sellers will be satisfied with the rate and quantity

buyers will be satisfied with utility that product provides

43
Q

where is there market equilibrium on a diagram ?

A

demand = supply

44
Q

where does market disequilibrium occur ?

A

any price above or below the equilibrium point

45
Q

what occurs when there is a market disequilibrium ?

A

excess demand
or
excess supply

46
Q

why does an excess demand occur ?

A

prices may be too low

47
Q

why does an excess supply occur ?

A

prices may be too high

48
Q

when price is below the equilibrium what will there be ?

A

a surplus

49
Q

when price is above the equilibrium what will there be ?

A

a shortage of demand

50
Q

what does the price elasticity of demand reveal to us ?

A

how responsive the change in quantity demanded is to a change in price

51
Q

how do you calculate a percentage change ?

A

% change = (new value - old value/ old value) x 100

52
Q

if a product has perfectly inelastic demand what does that mean ?

and what does that look like on a diagram ?

A

the quantity demanded for that product will not change regardless if there is a change in price

a vertically straight line

53
Q

if a product has perfectly elastic demand what does that mean ?

and what does that look like on a diagram ?

A

price will not change and therefore nor will the quantity demanded for product

a horizontally straight line

54
Q

why is it important for firms to be aware of the price elasticity of the products that they are selling ?

A

if a product is price inelastic, firms can increase there prices to maximise revenue

if a product is price elastic, firms may decrease there prices to maximise revenue

55
Q

what are the factors that influence PED ?

A

Availability of substitutes

Addictiveness, turns products into necessities, resulting in a low value of PED (relatively inelastic)

Price of product as a proportion of income

Time period, In the short term, consumers are less responsive to price increases

56
Q

if a good has a positive YED of 0-1, what type of good is it likely to be ?

A

a normal good

57
Q

if a good has a positive YED greater than 1, what type of good is it likely to be ?

A

a luxury good

58
Q

if a good has a negative YED less than 0, what type of good is it likely to be ?

A

an inferior good

59
Q

if a good has a positive XED greater than 0, what type of good is it likely to be ?

A

a substitute

60
Q

if a good has a negative XED of less than 0, what type of good is it likely to be ?

A

a complementary good

61
Q

what is the definition of price elasticity of supply (PES) ?

A

how responsive the change in quantity supplied is to a change in price

62
Q

what is the formula for PES ?

A

(% change in QS / % change in price)

63
Q

if the value pf PES is 0 what does that reveal to us ?

A

a perfectly inelastic relationship

64
Q

if the value pf PES is 0-1 what does that reveal to us ?

A

relatively inelastic

65
Q

if the value pf PES is 1-infinity what does that reveal to us ?

A

relatively elastic

66
Q

if the value pf PES is infinity what does that reveal to us ?

A

perfectly elastic

67
Q

what are the 5 factors that influence PES ?

A

mobility of the factors of production

the rate at which costs of production increase

ability to store goods

spare capacity

time period

68
Q

what are the 5 different types of interrelationships between markets ?

A

joint demand

competitive demand

composite demand

derived demand

joint supply

69
Q

what is joint demand ?

A

when consumers use two products together also known as complementary goods

the change in price of one good impacts the demand for the other good

70
Q

what is competitive demand ?

A

where two goods are used for the same purpose, also known as substitute goods

The change in price of one good impacts the demand for the other good

71
Q

what is composite demand ?

A

two or more good require the same input to make them

an increase in the production of one good could lead to a decrease in the supply of another good, less input is available

72
Q

what is derived demand ?

A

demand for a good or service arises from the demand for another good or service

73
Q

what is joint supply ?

A

the supply of two different goods stems from the same source

the increase in production of one good will increase the production of another good

Economics MICRO (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions