ssss Flashcards
When is productive efficiency achieved?
This is achieved in an economy when it is not possible to make anyone better off without making someone worse off, you cannot produce more of one good A without producing less of good B.
What are the factors influencing PED
Necessity
Availibility of substitutes
Addiction
% of income spent on good
What is allocative efficiency?
It occurs when the available economic recources are used to produce the combination of goods and services that best matches peoples tastes and preferences.
What is producer surplus?
The difference between the price producers are willing and able to supply a good and the price they actually recieve.
What is the definition of a complementary product
A good which is consumed with another
What are the factors affecting the price elasticity of supply?
-Time
-Raw materials need to be found, extracted and processed.
-Availibility of stocks or stock-piling
-The ease of switching between alternative production
-availibility of spare capacity
-Ability to alter production methods
What is the definition of demand?
Demand is the amount that consumers are willing and able to buy at each given price point.
What are production possibility boundaries?
Indicates the maximum possible output that can be achieved given a fixed set of recources and tech in a particular time period.
When is demand income elastic
answers above 1 or less than 1
Define cross price elasticity of demand
A measure of the responsiveness of qunatity demanded of one good to a change in the price of another good.
What is producer surplus the measure of?
The measure of the welfare producers gain from producing goods and services.
What is consumer surplus?
The difference between the total amount that people are willing and able to pay for a good or service (demand curve) and the total amount they actually do pay (market price).
What is price elasticity of demand?
Measures the responsiveness of quantity demanded to a change in the price of the good
What is composite demand
A good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the supply for the other purposes e.g. land
What is equilibrium?
The price at which demand is equal to supply and there is no tendency for change.
What are the determinants of supply - (things which shift supply).
-cost of raw materials
-technological improvements
-changes in labour productivity
-regulation and bereaucracy
-wage rates
-subsidies
-indirect taxes
-expectations about future prices
-objectives of firms
-number of sales in the market
-joint supply
What is disequilibrium in the long run?
The shortage returns to equilibrium
What is consumer surplus the measure of?
The measure of welfare (benefits) that people gain from consuming goods and services.
What are positive statements?
-Tested using evidence
-objective
-fact based
What is derived demand?
When the demand for one good or services comes from the demand for another good or service. That is, the good is a component of the other good.
What happens to total revenue when PED is elastic
a fall in price will increase total revenue
Describe what positive numbers mean for YED
the good is a normal good, the higher the number, the more luxurious the good
When PED is between 0 and -1
price inelastic demand
When prices fall, quantity demanded increases but at a smaller proportion than the fall in price.
What is economics the study of?
Economics is the study of the allocation of scarce recources within a society.
When PED > 1
A greater proportion of quantity than price when price falls.
A price elastic good is responsive to a change in price.
What is a trade off?
In order to produce more capital goods, there is a trade off in consumer goods.
What is a commodity?
A good that is traded, but usually refers to raw materials or semi manufactured goods that are traded in bulk.
Describe what negative numbers mean for YED
means the good is an inferior good, the lower the negative, the crappier the good
What does the demand curve look like and explain the concept of extensions and contractions of demand.
A quantity of Q1 is demanded.
* At a lower price of P2, a higher quantity is demanded (Q2) - this is called an extension in demand
* At a higher price of P3, a lower quantity is demanded (Q3) - this is called a contraction of demand
What is XPED when it is < 1
Weak substitute
When PED = 0
Perfectly inelastic
When price changes there is no effect on quantity demanded at all
Where is productive efficiency on the PPB?
Anywhere on the line
What is XPED when it is > 1
Strong substitute
What is disequilibrium in the short run?
When quantity demanded is greater than the quantity supplied.
What happens to total revenue when PED is 0
when prices fall, because quantity demanded does not change at all, total revenue must fall
What are the factors that shift PPB left?
-Emigration
-War
-Disease
-Disaster
IN XPED, are substitutes positive or negative
Always positive.
What are value judgements?
Opinions.
What is supply?
The amount offered for sale by produces at each given price level.
Formula for PeS
% change in quantity supplied / % change in price.
What happens to total revenue when PED is infinity
A change in price will eliminate all demand for the product
What is the definition of a inferior good
As income rises, demand falls
What is PRice elasticity of supply?
Measures the responsiveness of quantity supplied to changes in the price.
What is opportunity cost?
Benefit given up of the next best alternative.
What are normative statements?
Value judgements
can not be tested
What is the definition of a substitute
A good that can be used in place for another good
In XPED, what are complements
Always negative.
What is the definition of a normal good
As income rises, demand rises
When PED is -1
Unitary elastic good
Change in price brings about the same proportionate change in quantity demanded
What happens to total revenue when PED is between 0 and -1
when prices fall, total revenue will fall
What is Income elasticity of demand
Measures the responsiveness of quantity demanded to a change in income
When PED is infinity
Perfectly elastic
demand is infinite at a specific price.
When is demand income inelastic
Between 0 and 1 or 0 and -1
What is homogenous
Unbranded.
What is the formula for XPED
% Change in quantity demanded of good A / % change in price of good B
What are weak complements in XPED
Between 0 and -1
What are strong complements in XPED
less than -1
What 6 factors makes the demand curve shift.
- Population - larger pop = higher demand
- Income - more disposable income = buy more goods = demand increases.
- Related goods - e.g. a substitute increases price, demand will rise for competitors
- Advertising - increases consumer loyalty and increase demand
- Tastes and fashions
- Expectations and consumer confidence.
Joint supply is ..
where an increase in the supply of one good leads to an increase in the supply of a by-product.
What are the factors that shift PPB right
-Investment in new/nore tech
-Intro of new recources
-Increased supply of labour
-Improvements in human labour through training
-Encouraging entrepreneurship
-Increased productivity
What is productive efficiency?
It is capacity or where production is greatest (producing the most, using the least)
