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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.

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2
Q

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

A

a change in price

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3
Q

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

A

fall in price

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4
Q

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

A

rise in price

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5
Q

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

A

PIRATES

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6
Q

what does PIRATES stand for ?

A

Population
Income
Related goods
Advertising
Taste/ fashion
Expectations
Seasons

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7
Q

what is diminishing marginal utility ?

A

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

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8
Q

what is price elasticity of demand (PED) ?

A

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

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9
Q

what is the formula for PED ?

A

(%change in demand/ %change in price)

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10
Q

what does it mean if a product is elastic ?

A

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

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11
Q

what does it mean if a product is inelastic ?

A

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

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12
Q

what would the PED of a elastic product be ?

A

more than (1<)

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13
Q

what would the PED of a inelastic product be ?

A

Less than 1 (1>)

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14
Q

what would a perfectly elastic demand curve look like ?

A

completely horizontal

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15
Q

what would a perfectly inelastic demand curve look like ?

A

completely vertical

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16
Q

what are the factors influencing PED ?

A

necessities
substitutes
addictiveness
proportion of income
durability of good

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17
Q

how does indirect tax impact elastic goods ?

A

producers have to internalize the burden

prices rise, demand will fall

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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

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19
Q

how does subsidies effect producers and consumers ?

A

producers - higher revenue

consumers- lower prices

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20
Q

what is income elasticity of demand (YED) ?

A

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

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21
Q

what is the formulae for YED ?

A

(%change in demand/ %change in income)

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22
Q

what is an inferior good ?

A

if income rises
demand falls

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23
Q

what is a normal good ?

A

if income rises
demand rises

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24
Q

what is a luxury good ?

A

if income rises
demand rises significantly

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25
what is cross elasticity of demand (XED) ?
is the responsiveness of a change in demand of good X to a change in the price of good Y.
26
what is the formulae of XED ?
(%change in demand of good X/ %change in price of good Y)
27
what is a complementary ?
price increases of good X demand falls of good X&Y
28
what is a substitute ?
price increases of good X demand increases of good Y
29
what is supply ?
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
30
what causes a change in quantity supplied ?
price of FOP
31
if there is an outward shift in supply what does that mean ?
more goods are supplied at a given price
32
if there is an inward shift in supply what does that mean ?
less goods are supplied at a given price
33
what is the acronym for factors that cause a shift in supply ?
PINTSWC
34
what does PINTSWC stand for ?
Productivity Indirect taxes Number of firms Technology Subsidies Weather Costs of production
35
what is effective demand ?
demand whereby the customers can actually afford the good or service, they have the ability to pay.
36
what is ineffective demand ?
demand whereby the customers cannot actually afford the good or service, they don't have the ability to pay.
37
what does the law of demand state ?
that there is an inverse relationship between price and quantity demanded when price falls, QD rises when price rises, QD falls
38
what is the supply curve a graphical representation of ?
the price and quantity supplied by producers
39
why is the supply curve upward sloping ?
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
what does the law of supply state ?
that there is a positive relationship between price and QS
41
in a market system, how are prices determined ?
by the interaction of demand and supply
42
what happens at the market equilibrium price ?
sellers will be satisfied with the rate and quantity buyers will be satisfied with utility that product provides
43
where is there market equilibrium on a diagram ?
demand = supply
44
where does market disequilibrium occur ?
any price above or below the equilibrium point
45
what occurs when there is a market disequilibrium ?
excess demand or excess supply
46
why does an excess demand occur ?
prices may be too low
47
why does an excess supply occur ?
prices may be too high
48
when price is below the equilibrium what will there be ?
a surplus
49
when price is above the equilibrium what will there be ?
a shortage of demand
50
what does the price elasticity of demand reveal to us ?
how responsive the change in quantity demanded is to a change in price
51
how do you calculate a percentage change ?
% change = (new value - old value/ old value) x 100
52
if a product has perfectly inelastic demand what does that mean ? and what does that look like on a diagram ?
the quantity demanded for that product will not change regardless if there is a change in price a vertically straight line
53
if a product has perfectly elastic demand what does that mean ? and what does that look like on a diagram ?
price will not change and therefore nor will the quantity demanded for product a horizontally straight line
54
why is it important for firms to be aware of the price elasticity of the products that they are selling ?
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
what are the factors that influence PED ?
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
if a good has a positive YED of 0-1, what type of good is it likely to be ?
a normal good
57
if a good has a positive YED greater than 1, what type of good is it likely to be ?
a luxury good
58
if a good has a negative YED less than 0, what type of good is it likely to be ?
an inferior good
59
if a good has a positive XED greater than 0, what type of good is it likely to be ?
a substitute
60
if a good has a negative XED of less than 0, what type of good is it likely to be ?
a complementary good
61
what is the definition of price elasticity of supply (PES) ?
how responsive the change in quantity supplied is to a change in price
62
what is the formula for PES ?
(% change in QS / % change in price)
63
if the value pf PES is 0 what does that reveal to us ?
a perfectly inelastic relationship
64
if the value pf PES is 0-1 what does that reveal to us ?
relatively inelastic
65
if the value pf PES is 1-infinity what does that reveal to us ?
relatively elastic
66
if the value pf PES is infinity what does that reveal to us ?
perfectly elastic
67
what are the 5 factors that influence PES ?
mobility of the factors of production (how easy to switch between FOP) ability to store goods the rate at which costs of production increase spare capacity time period
68
what are the 5 different types of interrelationships between markets ?
joint demand competitive demand composite demand derived demand joint supply
69
what is joint demand ?
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
what is competitive demand ?
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
what is composite demand ?
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
what is derived demand ?
demand for a good or service arises from the demand for another good or service
73
what is joint supply ?
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 (8 decks)

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