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Microeconomics Year 1 > Section 2 - Price Determination in a competitive market > Flashcards

Section 2 - Price Determination in a competitive market Flashcards

1
Q

Market

A

Any place or process that brings together buyers and sellers with a view of agreeing a price

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2
Q

Demand

A

Amount that buyers are willing and able to purchase at a given price in a given time period

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3
Q

Ceteris Paribus

A

Everything else held constant

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4
Q

“Law of Demand”

A

More will be demanded as price falls

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5
Q

Factors of demand

A

Things other than price which affect the demand causing the curve to shift

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6
Q

PED

A

Measures the proportional responsiveness of demand to a change in price of a good

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7
Q

YED

A

Measures the proportional responsiveness of demand to a change in consumers income

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8
Q

XED

A

Measures the proportional responsiveness of the demand for a good to a change in price of another good

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9
Q

Revenue

A

The income that a firm receives from a sale of a good or service to its customers

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10
Q

Supply

A

The quantity of a good / service producers are willing and able to produce at a given price in a given time period

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11
Q

Factors of supply

A

Things other than price which affect the supply causing the curve to shift

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12
Q

PES

A

Measures the proportional responsiveness of the quantity supplied to a change in price

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13
Q

Equilibrium

A

The price at which quantities demanded and supplied are equal

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14
Q

Consumer surplus

A

The difference between how much buyers are willing to pay and what they actually pay

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15
Q

Producer surplus

A

The difference between the market price and the lowest price at which the firm is prepared to supply

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16
Q

Welfare economics

A

Optional allocation of resources/ goods and how this affects social welfare.

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17
Q

Tax

A

Compulsory payment to the government

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18
Q

Indirect taxes

A

Taxes on spending

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19
Q

Specific Tax

A

A tax placed on a good/service which is a specific amount of money produced per unit bought

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20
Q

Ad valorem Tax

A

A tax placed on a good/service which is a percentage of a price, e.g VAT

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21
Q

Direct Taxes

A

Taxes on incomes

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22
Q

Subsidy

A

A payment made to the producer by the government to encourage/ increase production and lower price

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23
Q

Joint demand

A

When goods are demanded together e.g. printer and ink cartridges

24
Q

Composite demand

A

When the good demanded has more than one use e.g. milk

25
Q

Derived demand

A

When the demand for one good is linked to the demand for a related good e.g. labour

26
Q

Substitutes

A

A good that can demanded in place of another

27
Q

Joint Supply

A

increasing the supply of one good causes and increase/decrease in the supply of another good

28
Q

Minimum prices

A

Set above the equilibrium price and it would be illegal to sell below that price

29
Q

Maximum prices

A

The price is not allowed to rise above a certain level

30
Q

Surplus

A

When supply is greater than demand

31
Q

Shortage

A

When demand is greater than supply

32
Q

The price mechanism

A

The means by which decisions of consumers and businesses interact to determine the allocation of resources

33
Q

The invisible hand

A

Letting free markets do their thing

34
Q

Consumer sovereignty

A

The idea that it is consumers who influence production decisions

35
Q

Signalling function

A

Changes in price provide information to both producers and consumers about changes in market conditions

36
Q

Incentivising function

A

When the price of the product rises, quantity supplied increases as businesses respond

37
Q

Allocating function

A

Allocating scarce resources among competing uses

38
Q

Rationing function

A

When there is a shortage of a product, price will rise and deter some consumers from buying the product

39
Q

Static efficiency

A

Occurs when resources are allocated efficiently at one point in time

40
Q

Allocative efficiency

A

When the right amount of resources goes into the market

41
Q

Productive efficiency

A

When the optimal combination of inputs produce the maximum amount of output

42
Q

Dynamic efficiency

A

Resources are allocated efficiently over time

43
Q

Inferior goods

A

A good whose demand drops when people’s incomes rise.

44
Q

Complements

A

A good whose use is related to the use of an associated or paired good e.g. the demand for one good (printers) generates demand for the other (ink cartridges).

45
Q

Dead-weight Loss

A

A cost to society created by market inefficiency

46
Q

Market Forces

A

refer to supply and demand, which determine the allocation of scarce resources and the relative prices of goods, services, and assets in a market economy.

47
Q

PED equation?

A

percentage change in quantity demanded / percentage change in price

48
Q

The price elasticity will usually be…

A

negative.

49
Q

DEMAND
Perfectly Elastic?
Elastic?
Unit Elastic?
Inelastic?
Perfectly inelastic?

A

Infinity
>1
=1
<1
0

50
Q

What are the 5 factors affecting PED?

A

Strength and number of substitutes; Luxuries/necessities; Addictive/Habit forming; Percentage of Income; Time period under consideration

51
Q

Demand is said to be inelastic when…

A

the percentage change in price exceeds the percentage change in quantity demanded of a good

52
Q

PES equation?

A

percentage change in the quantity supplied/ percentage change in the price

53
Q

SUPPLY
Perfectly elastic?
Elastic?
Unit elastic?
Inelastic?
Perfectly inelastic?

A

Infinity
>1
=1
<1
0

54
Q

What are the 6 factors affecting PES?

A

Length of the production period; The amount of spare capacity; Levels of stocks; Substitutabilty of Factors of Production; Time period/ time lags; Artificial barriers to supply e.g Patents

55
Q

XED Equation?

A

% change in quantity demanded of good A / % change in price of good B

Microeconomics Year 1 (14 decks)

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