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AQA A-level Economics (micro) > Price determination in a competitive market > Flashcards

Price determination in a competitive market Flashcards

1
Q

What is a market

A

a market is a voluntary meeting of buyers and sellers in which exchange takes place

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2
Q

What is a competitive market

A

it is when there are a large number of buyers and sellers who accept the market price not by their own decision but by everyone who takes part in the market

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3
Q

What do high competition do to barriers of entry and exit

A

they lack entry and exit which means buyers and sellers can easily enter the market

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4
Q

Do competitive markers have a high degree of transparency? Explain the term.

A

Yes competitive market have a high degree of transparency- buyers and sellers can quickly find out what everyone else in the market is doing

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5
Q

What is demand

A

the quantity of good and services that consumers are willing and able to buy at a given price in a given period of time

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6
Q

What is supply

A

the quantity of a good or service that producers are willing and able to sell at a given period of time

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7
Q

What does a demand curve show

A

shows the relationship between the price of a good or service and the quantity of the good or service demanded at difference prices.

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8
Q

What is market demand

A

the quantity of good or service that all consumers in the market wish to, and are able to, buy at different prices

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9
Q

What is individual demand

A

the quantity that a particular individual would like to buy

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10
Q

When does a movement along a demand curve happen

A

takes place when the goods price changes.

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11
Q

What are other ways to say movement along a demand curve

A

extension and contraction

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12
Q

What is the ceteris paribus assumption

A

assuming that all other variables that may influence demand are held unchanged or constant

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13
Q

What are the conditions of demand aka what shifts the demand curve to a new position (5)

A

-the prices of a substitute good
-prices of a complementary good
-personal income
-tastes and preferences
-population size

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14
Q

What is a substitute good

A

an alternative good that could be used for the same purpose

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15
Q

what is a complementary good

A

when two goods are complements, they experience joint demand

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16
Q

What is a normal good

A

a good for which demand increases as income rises and demand decreases as income falls

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17
Q

What is an inferior good

A

a good for which demand decreases as income rises and demand increases as income falls

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18
Q

What is elasticity

A

measures the responsiveness of a second variable to a change in the first variable

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19
Q

What does it mean if demand is elastic vs inelastic

A

inelatic is when price changes demand does not change

elastic is when price increase demand decrease and vice versa

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20
Q

What are the three demand elasticities you must know

A

-price elasticity of demand
-income elasticity of demand
-cross-elasticity of demand

21
Q

What is the formula for price elasticity of demand

A

percentage change in quantity demanded/ percentage change in price

22
Q

What is the formula for income elasticity of demand

A

percentage change in quantity demanded/ percentage change in income

23
Q

What is cross-elasticity of demand formula

A

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

24
Q

What is price elasticity of demand

A

measures consumers’ responsiveness to a change in a good’s price

25
Q

What does a horizontal demand curve show

A

perfectly elastic demand

26
Q

What does a vertical demand curve show

A

perfectly inelastic demand

27
Q

What is unit elastic of demand

A

it is when supply and demand of a product changes proportionally (by the exact same amount) to the change in price

28
Q

What factors determine price elasticity of demand

A

-substitute
-income
-necessities or luxuries
-size of the market
-time

29
Q

What is income elasticity of demand

A

measures how demand responds to a change in income- depends on whether the good is a normal good or an inferior good

30
Q

When is income elasticity of demand positive or negative

A

positive for a normal good
negative for an inferior good

31
Q

What can normal goods be further divided into

A

superior goods or luxuries

32
Q

What is cross elasticity of demand

A

measures how the demand for one good responds to changes in the price of another good

33
Q

What are three possible relationships of cross-elasticity of demand

A

complementary good (or joint demand)

substitutes (or competing demand)

no significant relationship between the goods

34
Q

What is market supply

A

Market supply is the quantity of a good or service that all firms or producers in the market plan to sell at different prices

35
Q

What is profit

A

the difference between the total revenue the firm receives when selling the goods or services it produces and the cost of producing the good

36
Q

What could shift the supply curve to a new position (4)

A

cost of production
technology
taxes
subsidies

37
Q

What is the only supply elasticity you need to know

A

price elasticity of supply

38
Q

What is the formula for price elasticity of supply

A

percentage change in quantity supplied/percentage change in price

39
Q

What does it mean if the supply curve intersects the price axis

A

the curve is elastic at all points and elasticity decreases as you move up the curve

40
Q

What does it mean if the supply curve intersects the quantity axis

A

the curve is inelastic at all points and elasticity increases as you move up the curve

41
Q

What does it mean if the supply curve passes through the origin

A

elasticity = 1 on all points on the curve

42
Q

What is market equilibrium

A

when planned demand equals planned supply aka when demand crosses supply

43
Q

What is excess supply

A

when firms wish to sell more than consumers which to buy with the price above the equilibrium price

44
Q

what is excess demand

A

when consumers wish to buy more than firms wish to sell, with the price below the equilibrium price

45
Q

What is joint supply

A

when production of one good leads to the supply of another good eg killing more cows increases supply for leather

46
Q

What is joint demand

A

an increase in demand for one good increases demand for another good

47
Q

what is composite demand

A

demand for a good which has more than one use eg crude oil

48
Q

what is derived demand

A

when a good is necessary for the production of another good eg machinery and raw materials

AQA A-level Economics (micro) (4 decks)

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