RANDOM ECON KNOWLEDGE Flashcards
3 Relationships between products
substitute goods / complementary goods / unrelated goods
Speculation Significance
when there is speculation of a product’s price changing in the future, it will often lead to a change in that product’s immediate demand
Non-Price Determinants of Demand
- income
- price of substitute / complementary goods
- consumer preference
- age / government policy / season
Price Elasticity of Demand (PED)
percentage change in quantity demanded / percentage change in price
Income Elasticity of Demand (YED)
percentage change in quantity demanded / percentage change in income of the consumer
Supply
the quantity of a good or service that producers are willing and able to supply at different prices in a given period of time
Demand
the quantity of a good or service that consumers are willing and able to purchase at different prices in a given period of time
Short-Run
the period of time it takes to fix one factor of production
Long-Run
the period of time it takes in which all factors of production are variable
Price Elasticity of Supply (PES)
percentage change in quantity supplied / percentage change in price of the product
3 Significances of Price
- signal : prices give information to the market
- ration : prices create scarcity
- incentivize : prices dictate whether or not consumers will purchase
Merit Good
a commodity or service that is regarded by society to be deserving of government finance
Demerit Good
a good or service that when consumed is considered to be unhealthy
Indirect Tax
a tax imposed upon the expenditure of a certain good or service
Subsidy
a sum of money granted to producers by the government to keep the price of commodities and services low
Reasons to implement an indirect tax
- to discourage the consumption of a demerit good
- to provide a source of revenue for the government
- combat inflation
- to redistribute income (luxury goods tax)
Reasons to implement a subsidy
- to keep the price of an essential good low
- to guarantee a supply for a good deemed necessary by the government
- to allow producers to compete with cheaper overseas competitors
Price Ceilings
when a government sets the maximum price of a good or service below the market equilibrium price
Price Floor
when a government sets the minimum price of a good or service above the equilibrium price
Market Failure
when there is an inefficient distribution of goods and services in the free market
Factors of Production
- land
- labor
- entrepreneurship
- capital
