test Flashcards
law of demand
as price goes up quantity demanded falls
causing negativley sloping demand curve
state three main reasins for negative slope
income effect
substitution effect
diminishing marginal utility
Explain the income effect
able buy > of a good
with set amount of money
if the price of that good falls
What happens to purchaisng power when price of good rises
falls
Whats purchasing power
amount of goods that can be bought with a pound
Explain substitution effect
price for product falls so appears cheaper compared to other goods ceterius paribus
so people switch from buying expensive good to buying this cheaper one
therefore number of people demanding this good will increase
define marginal
extra unit of something
Explain diminishing marginal utlit
buy goods to satisf want for good
each suceedinggood bought will satify a littleless than the one previously
when do you do movement along the curve
to do with the products price
When do you shift curve
Population Advertising Seasonal Income Fashion/trends Interest Rates Complementary goods
Social and Emotional factors (e.g ethics)
wHAT RELATIONSHIP DOES SUPPLY CURVE SHOW
relationship betweent
amount of good supplied
and price 4 good @ each quantity
Who/what is supply curve determined by
producers descisions
Why does supply curve have a positrive slopw
hihger price good sells at : the more willing a firm is to produce that good
therefore QS increases with rising prices as producers incentivised to produce more
When do you do movements along the supply curve
for each quantity supplied there isa different price
When do you shift supply curve
there’s a change in quantity supplied at each price level level
Why do you shift supply curve
Productivity Indirect taxes Number of firms Technology Subsidies Weather conditions Cost of production
What does productivity do and how
shift supply outwards
able to make more products in less time
What does indirect taxes do and hiw
shift inwards
as costs increase
What does numebr fo firms do and how
increasing - shift supply outwards
increase market supply
What does tech do
shift outwards
as more efficient production @EACH LEVEL
as more output produced lower UC as makes more with the same FC
What do subsidies do
outward shift of supply
as casues cost to go down or this money can be used to invest in capital
What does weather do
shift supply outwards
increases supply especially in agriculture
What does cost of production do
lower uc - shift out - as bs supply more at each price
higher uc - shift in - bs makes less at each price
What does fall in exchange rate do
makes imports more expensive - imported components &raw materials
define PES
measures repsonsivness of QS to a change in price
What can elasticity of supply be thought of as
sensitivity of supply or responsiveness of supply
Whose behaviour does Elasticity of supply look @
producers
If price of a good rises what are bs likely ot do
and but what does elasticity of supply do
supply more of good
measures how much supply will change by
What does an INELASTIC PES mean
bs unlikely to change quantity supplied by big amount if price for it changes
What does ELASTIC PES
bs likely to change quantity supplied by a large amount if price changes
STATE EQUATION
%change in price / %change in quantity supplied
PES = 1 what does this mean
change in price has exact same change in quantity
what is the PES of perfectly inelastic
0
What does PES 0 MEAN
INELASTIC
QS wont change with a change in price
What does perfectly elastic have a PES of
infinity
What does perfectly elastic PES mea
quantity can change w/o change in price
FActors affectin Elasticity of Supply
spare capacity
