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Micro > Topic 2 - Demand and Supply > Flashcards

Topic 2 - Demand and Supply Flashcards

1
Q

What is demand?

A

The different quantities that consumers are willing and able to buy at different prices.

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2
Q

What is the Law of Demand?

A

Negative relationship between price and quantity demanded.

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3
Q

What are the non-price determinants of demand?

A

Income, tastes and preferences, future price expectations, price of related goods, number of consumers.

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4
Q

What is a normal good?

A

A good for which demand increases as income increases.

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5
Q

What is an inferior good?

A

A good for which demand decreases as income increases.

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6
Q

What is supply?

A

The different quantities that producers are willing and able to sell at different prices.

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7
Q

What are the non-price determinants of supply?

A

Costs of factors of production, technology, prices, producer price expectation, government intervention, number of firms, shocks.

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8
Q

What is the Law of Supply?

A

Positive relationship between price and quantity supplied.

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9
Q

What is elasticity?

A

Measures the responsiveness of a variable as a result of a change in another variable.

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10
Q

What is Price Elasticity of Demand (PED)?

A

Measures the responsiveness of the quantity demanded of a good as a result of a change in price.

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11
Q

What does PED > 1 indicate?

A

Demand is elastic.

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12
Q

What does PED < 1 indicate?

A

Demand is inelastic.

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13
Q

What does PED = 1 indicate?

A

Demand is unit elastic.

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14
Q

What does PED = 0 indicate?

A

Demand is perfectly inelastic.

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15
Q

How is Price Elasticity of Demand calculated?

A

% change in Qd / % change in P.

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16
Q

What are the determinants of PED?

A

SPLAT: Substitute goods, proportion of income spent, luxury vs. necessity, addiction, time to respond.

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17
Q

What is the Total Revenue Test for PED?

A

PED > 1: Price falls, total revenue increases; Price increases, total revenue decreases. PED < 1: Price falls, total revenue falls; Price increases, total revenue increases.

18
Q

What is Price Elasticity of Supply (PES)?

A

Measures the responsiveness of the quantity supplied of a good as a result of its change in price.

19
Q

What does PES > 1 indicate?

A

Supply is elastic.

20
Q

What does PES < 1 indicate?

A

Supply is inelastic.

21
Q

What does PES = 1 indicate?

A

Supply is unit elastic.

22
Q

What does PES = 0 indicate?

A

Supply is perfectly inelastic.

23
Q

What are the determinants of PES?

A

FASTR: Factors of production mobility, ability to store stocks, spare capacity of firms, time to adjust, rate at which costs increase.

24
Q

What is Income Elasticity (YED)?

A

Measures the responsiveness of the quantity demanded of a good to a change in income.

25
Q

How is YED calculated?

A

YED = % change of Qd / % change in Income.

26
Q

What does YED > 0 indicate?

A

Normal good.

27
Q

What does YED < 0 indicate?

A

Inferior good.

28
Q

What is Cross Price Elasticity (XED)?

A

Measures the responsiveness of the quantity demanded of a good to a change in the price of different goods.

29
Q

How is XED calculated?

A

XED = % Change in Qd of Good A / % change in price of Good B.

30
Q

What does XED > 0 indicate?

A

Substitutes.

31
Q

What does XED < 0 indicate?

A

Complements.

32
Q

What is consumer surplus?

A

Difference between what a consumer is willing to pay and what they actually paid for a product.

33
Q

What is producer surplus?

A

Difference between the market price and the lowest price a producer is willing to accept to produce a good.

34
Q

What is deadweight loss?

A

Lost efficiency when the socially optimal quantity is not being produced.

35
Q

What is the Double Shift Rule?

A

When two curves shift at the same time, either price or quantity will be indetermined.

36
Q

What are price controls?

A

Form of government intervention that sets a maximum or minimum price that producers can charge for certain goods or services.

37
Q

What is a price ceiling?

A

The legal maximum price set below the market equilibrium by the government for a good or service.

38
Q

What is a price floor?

A

The legal minimum price set above the market equilibrium by the government for a good or service.

39
Q

What happens if the price ceiling is set above equilibrium?

A

Nothing.

40
Q

What is an indirect tax?

A

Tax that is placed on the expenditure of a good or a service that is partially paid by the consumers but directly paid for by the producers to the government.

41
Q

What does YED > 1 indicate?

A

normal good - luxury good

Micro (3 decks)

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