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Y11 Econ > supply, demand, elasticity, taxes, subsidies & competition > Flashcards

supply, demand, elasticity, taxes, subsidies & competition Flashcards

1
Q

what are consumer protection laws

A

laws which protect consumers from exploitation and harmful business activities

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2
Q

list 3 competition policies

A

regulating the prices and service levels of monopolies
imposing fines on firms that abuse their market power
forcing monopolies to break up into smaller competition firms

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3
Q

what is competition policy

A

refers to measures governments use to control the behaviour of firms acting anti-competitively and against the interests of consumers

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4
Q

what is x-inefficiency

A

a monopoly may be poorly managed and inefficient if it does not face any competition

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5
Q

list 3 ways a monopoly may abuse its power

A

restrict market supply to force price up
restrict competition and consumer choice
cut product quality to save costs

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6
Q

what are natural barriers to entry

A

those barriers to entry which occur because large-scale production is often more efficient

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7
Q

what are artificial barriers to entry

A

those barriers created artificially and used by a monopoly to restrict competition

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8
Q

list two types of barriers to entry

A

artificial barriers to entry and natural barriers to entry

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9
Q

what are abnormal profits

A

excess profits above what they would be if there was competition

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10
Q

y do monopolies restrict supply

A

to force up the market price and earn abnormal profits

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11
Q

what is a monopoly

A

a single firm or grp of firms acting together with sufficient market power to restruct competition and set the market price

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12
Q

list 4 types of competition

A

perfect competition
monopolistic competition
oligopoly
monopoly

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13
Q

what is normal profits

A

the minimum amount of profit a firm needs to stay in the market

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14
Q

what are 2 differences between perfect competition and pure monopoly

A

in a perfect competition there are many suppliers with identical products and in a pure monopoly there is a single large supplier

in perfect comp, individual firms have no control over market price, in a monopoly, firms can determine market price

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15
Q

what can predatory pricing result in

A

damaging price wars

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16
Q

what is a disadvantage of cost based pricing

A

it takes no account of what consumers may be willing to pay or how much competition there is

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17
Q

cost plus pricing formula

A

tc/output + mark-up = selling price

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18
Q

what is cost pluw pricing

A

it involves estimating how many of the product will be produced and then calculating tc of producing this output and finally adding a percentage markup for profit.

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19
Q

why is price leadership done

A

to avoid price wars

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20
Q

what is price leadership

A

firms with the largest market share who are the price leaders will raise or lower its prices and other firms in the market will do the same.

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21
Q

what is price wars

A

involves setting the prices in line with the competitors price or just below their prices

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22
Q

what is predatory pricing

A

prices are cut down deeper often below the costs in order to destroy sales of new or existing competitor

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23
Q

when is price skimming used commonly

A

with products which are new inventions and ppl r willing to pay a premium price because of the novelty.

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24
Q

what is price skimming

A

this is when product is launched at a premium price.

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25
Q

when is penetration pricing usually followed

A

when there is a lot of competition and the product may not be unique

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26
Q

what is penetration pricing

A

involves setting the price lower than the competitors prices

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27
Q

list a cost based pricing strat

A

cost plus pricing

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28
Q

list 3 competitive pricing strats

A

predatory pricing
price wars
price leadership

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29
Q

list two demand based pricing strategies

A

penetration pricing
price skimming

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30
Q

list 3 types of pricing strategies

A

demand based pricing, competition based pricing. cost-based pricing

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31
Q

list 2 types of advertising

A

informative and persuasive

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32
Q

what is non-price competition

A

competing on all other product features other than price

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33
Q

what is price competition

A

competing with rival suppliers on product price

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34
Q

what are the 2 types of competition

A

price competition, non price competition

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35
Q

%change in price formula

A

p2-p1/p1 x 100

36
Q

%change in qty formula

A

q2-q1/q1 x 100

37
Q

list 2 disadvantages of subsidies

A

causes excess supply
distorts international competition

38
Q

list 3 advantages of subsidies

A

used in agriculture to support farmers
encourages innovation
used to encourage production and lower cost of solar panels and turbines

39
Q

what does a subsidy do

A

causes firms supply curve to shift to the right since cop is reduced.

40
Q

what is a subsidy

A

incentive given by the government to individuals or businesses in the form of cash, grants or tax breaks that improve the supply of certain goods and services.

41
Q

what does an ad valorem tax do

A

shifts up the supply curve by a certain percentage meaning the new supply curve will not be parallel to the original. The amount of tax per unit increases as price increases

42
Q

what does a specific unit tax do

A

shifts up supply curve by the full amount of the tax so that the new curve is parallel to the original one.

43
Q

what is an unit tax

A

set amount of tax per unit sold

44
Q

what are the 2 types of indirect taxes

A

specific and ad valorem taxes

45
Q

list 3 purposes of indirect taxes

A
  • generate tax revenue for a government
  • discourage consumption of harmful products
  • encourage consumption of good productsq
46
Q

what are direct taxes

A

those taxes which are levied on incomes of households and firms

47
Q

what is a synonym for indirect taxes

A

expenditure taxes

48
Q

what are indirect taxes

A

those taxes imposed by a government on goods and services.

49
Q

what is perfectly inelastic supply

A

a change in price will not affect supply at all. PES = 0

50
Q

what is perfectly elastic supply

A

at a certain price, producers are prepared to supply any amount. PES is infinite

51
Q

what is inelastic supply

A

when changes in price result in smaller changes in qty supplied. PES<1

52
Q

what is elastic supply

A

when changes in price lead to greater changes in qty supplied. PES>1

53
Q

PES formula

A

%change in qty supplied/%change in price

54
Q

what is PES

A

measure of responsiveness of quantity supplied to a change in price

55
Q

what should a firm do if good is inelastic to make profits

A

increase price

56
Q

what should a firm do if a good is elastic to make profits

A

reduce price

57
Q

total revenue formula

A

P x Q

58
Q

What is total revenue

A

amount paid by buyers and received by sellers of a good

59
Q

what is unitary elastic demand

A

when change in price leads to equal changes in qty demanded. PED = 1

60
Q

what is perfectly elastic demand

A

At a certain price, the demand of that product is infinite. PED is infinite

61
Q

what is perfectly inelastic demand

A

rise or fall in the price of the product causes no change in the quantity demanded of the product. PED = 0

62
Q

what is inelastic demand

A

when change in price leads to smaller change in qty demanded PED<1

63
Q

what is elastic demand

A

when change in price leads to greater change in qty demanded. PED > 1

64
Q

ped formula

A

%change in qty demanded/%change in price

65
Q

what is price elasticity of demand

A

measure of responsiveness of qty demanded to a change in price

66
Q

what happens to demand curve when there is an decrease in demand

A

shift in demand curve to left creating temporary surplus causing prices and quantity to go down

67
Q

what happens to demand curve when there is an increase in demand

A

shift in demand curve to right creating temporary shortage which causes prices and quantity to increase

68
Q

what happens to prices when there is a shortage

A

prices tend to rise until equilibrium is resoted

69
Q

what is shortage

A

when the qty demanded exceeds qty supplied at a given price

70
Q

what happens to prices when there is a surplus

A

prices tend to fall until equilibrium is restored

71
Q

what is surplus

A

when the qty supplied exceeds qty demanded at a given price

72
Q

what is equilibrium

A

when the qty supplied and qty demanded are equal. there is no surplus or shortage

73
Q

what happens to a supply curve when theres an decrease in supply

A

shifts to left creating temporary shortage causing prices to increase and quantity to decrease.

74
Q

what happens to a supply curve when theres an increase in supply

A

shifts to the right creating temporary surplus causing prices to decrease and quantity to increase.

75
Q

when does a supply curve shift

A

whenever a non price factor influences supply changes

76
Q

what is contraction of supply

A

ceteris paribus, decrease in quantity supplied due to the decrease in prices which leads to downward movement along the supply curve

77
Q

what is extension in supply

A

ceteris paribus, increase in quantity supplied due to the increase in prices which leads to upward movement along the supply curve

78
Q

what is law of supply

A

ceteris paribus, a higher price leads to a higher quantity supplied and that a lower price leads to a lower quantity supplied. there is a direct relationship between price and qty supplied

79
Q

what is quantity supplied

A

the amount of goods and services producers are willing and able to sell to consumers at any given price.

80
Q

what is decrease in demand

A

decrease in demand means that consumers now demand less of a product at each and every price than they did before, demand curve will shift to the left

81
Q

what is increase in demand

A

it means that consumers now demand more of a product at each and every price than they did before, demand curve shifts to the right

82
Q

what is extension in demand

A

ceteris paribus, when price decreases, quantity demanded increases, there is a downward movement along demand curve

83
Q

what is contraction in demand

A

ceteris paribus, when price increases, quantity demand decreases. there is an upward movement along the demand curve

84
Q

what is the law of demand

A

ceteris paribus, if price of a good or a service increases, quantity demanded decreases and vice versa. There is inverse relationship between price and quantity demanded

85
Q

what is market demand

A

total demand for that product from all its consumers

86
Q

what is individual demand

A

demand of just one customer

87
Q

what is demand

A

willingness and ability to purchase a good or service at any given price

Y11 Econ (5 decks)

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