Role of Markets Flashcards
Division of labour
Where the production process is broken down into stages and workers are assigned different tasks
Demand
The amount of goods and services consumers are willing and able to purchase at a given price in a given time
Supply
The quantity of goods and services producers are willing and able to produce at a given price in a given time
Speciilisation
Where an individual worker, firm, region, or country produces a limited range of goods or services
What is individual demand
the demand for a product by a consumer
What is market demand
the demand for a product by all consumers in a market
what is competitive demand
demand for goods that are in competition with each other
what is composite demand
demand for good that has multiple uses
what is joint demand
goods which are interdependent/ demanded together.
What is individual supply
supply for a product by one producer
what is market supply
supply for a product by all producers in a market
what is competitive supply
a firm can use its’ resources to produce more than one product
what is joint supply
when a firm produces more than one product together
what is competitive supply
What causes a shift in the demand curve
Population
Advertising
Substitute goods/ price
Income
Fashion trends
Interest rates
Complimentary goods/price
What causes a shift in the Supply curve
Productivity
Indirect tax
No. of firms
Technology
Subsidy
Weather
Cost of production
What is the law of demand
there is an inverse relationship between price and quantity demanded. As price increases Qd decreases
What is the law of supply
there is a direct relation between price and quantity supply
Advantages of Specialisation of labour
effeciency of the country increases
inflation decreases and consumers would benefit from a lower price
production would increase
disadvantages of Specialisation of labour
the sector that produces the goo that the country choses not to specialise in will be threatened and may collapse
a more diverse economy may be less efected by adverse shocks which only affect specific industries
Countris will become dependant on other countries to produce goods they aren’t specialised in
Advantages of Division of labour
more efficient as time spet on switching tasks is eliminated
practice makes perfect
disadvantages of Division of labour
Can be boring and mistakes may occur due to monotony
may become experts and find they don’t have any other skills which can lead to high structural unemployment.
Problem with the barter economy
‘double coincidence of wnats’ when both parties have what the other has.
When is there an extention of the demand curve
when price falls from p1 to p2
When is there a contraction of the demand curve
When price rises
When is there an extention in a supply curve
price rises
When is there a contraction in a supply curve
price falls
What is consumer surplus
Area under the demand curve but above the price, where it is all the utility of all the consumers willing to pay above the price set
What is producer surplus
Area above supply curve and below price level, the additional benefit producers recieve from selling their goods at a higher price
What happens when at equillibrium, the shift in demand is greater than the shift in supply
quantity decreases
What is cross elasticity of demand (XED)
The responsiveness, quality demanded of one good to the change in price of another good
Equation for XED
%change in Qd of good A / %change in price of another good B
According to XPED when are goods complimentary and when are they supplementary
Complementary when XPED is negative
Supplementary when XPED is positive
Define income elasticity of demand
The measures the responsiveness of demand in percentage terms to a change in the real incomes of customers
Equation for Income elasticity of demand
%change of quantity demanded/ %change of Y
If YED>1 what is the good
Luxury good
If YED<1 what is the good
Necessity
What is price elasticity of supply
The responsiveness in changes in quantity supplied to changes in price
Factors influencing price elasticity of supply
Production laga
Spare capacity
Stocks
Sustainability of FOP
Time period
Define margin
Change in variable caused by an increase of 1 unit of another variable
Define total utility
Overall benefit of consuming a good
Define marginal utility
Benefit from consuming one extra unit of good
When does market failure occur
When the price mechanism fails to work efficiently or to perform at all. There is a misallocation of resources in the economy. Either due to failing product or providing the wrong quantity
When does completw market failure occur
When the market doesn’t exist
What are characteristics of public goods
Non-excludability and non-rivalry
Define non excludability
Consumption of a good cable be condined to those who have payed for it
Define non rivalry
Consumption by one individual doesn’t reduce the availability of Goods for another individual
Components of private good
Had rivalry and excludability
Define quasi public goods
Goods that are either non excludable or non rival but not both
