Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ECONOMICS > topic 3: markets > Flashcards

topic 3: markets Flashcards

1
Q

what is ceteris paribus

A

The ceteris paribus assumption supposes that all variables affecting economic decisions are independent of one another

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How are market prices determined?

2018 Atomi Question
A
(Choice A)
By the forces of supply and demand
B
(Choice B)
By a central planning authority
C
(Choice C)
All businesses charge whatever they like
D
(Choice D)
Consumers pay what they feel like paying

A

a

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Complete the sentence:

The ceteris paribus assumption supposes that all variables affecting economic decisions…

2018 Atomi Question
A
(Choice A)
are intertwined and influence one another.
B
(Choice B)
are independent of one another.
C
(Choice C)
may only be intertwined in specific circumstances.
D
(Choice D)
must be considered at once.

A

b

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Why do economists use the ceteris paribus assumption when forming and analysing models?

2018 Atomi Question
A
(Choice A)
To make models easier to draw
B
(Choice B)
Data is not available for other variables
C
(Choice C)
To make their jobs easier
D
(Choice D)
To clearly understand the relationship between two variables

A

d

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what is demand

A

the quantity of a particular good or service that consumers will purchase at various prices at a given time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what is market demand

A

demand by all consumers in the economy for a particular good/service

i.e oranges are $1
tom wants 2 jim wants 3 and jane wants 1
the market demand is 2+3+1 = 6 oranges

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what is a demand curve

A

it shows how much market demand there will be at different prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what are the factors affecting demand

A
  1. price of the good or service itself future prices
  2. the price of other goods
  3. expected future prices

4.changes in consumer tastes/preferences

5.level of income

6.size of population and age distribution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is demand?

2018 Atomi Question
A
(Choice A)
The welfare gained from consuming a good or service
B
(Choice B)
The level of happiness one associated with a good or service
C
(Choice C)
The desire to consume goods and services in the economy
D
(Choice D)
The availability of goods and services in the economy

A

c

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what is the law of demand

A

the inverse relationship between price and quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what is a contraction

A

it occurs when an increase in price, causing the quantity demanded to fall

shown in the demand curve going up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what is a expansion

A

when the price decreases causing an increase in demand

shown in the demand curve going down

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

does changes in price cause movement along the curve

A

yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what would happen if the demand curve shifts to the right

A

it would mean there is an increase in demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what would happen if there a a shift to the left in the demand curve

A

a shift to would mean there is a decrease in demand

i.e due to weather

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is supply

A

a firm’s desire to supply goods and services based on market price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

how does price affect supply

A

price determines how many goods a business makes by impacting profitability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

how does price affect demand

A

price determines which goods a consumer spends their limited money on by impacting opportunity cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what is market supply

A

the quantity of a good or service that all firms in an industry can offer for sale at various price levels at a particular point in time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what is the supply curve

A

the supply is similar to the demand curve however it slopes upwards from left to right

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what are the 5 factors affecting supply

A
  1. cost of factors of production
    -any change in the costs of one of the factors of production will change the supply
  2. cost of other goods and services
    - changes in the price of other goods the business produces will impact supply
  3. expected future prices

4.number of suppliers
when the amount of individual firms producing increase, so too will market supply

5.changes in technology
-when the state of technology improves, the level of supply will improve too

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Why does new technology lead to an increase supply?

2018 Atomi Question
A
(Choice A)
The number of employees increases
B
(Choice B)
The quality of products increases
C
(Choice C)
The costs of production decrease
D
(Choice D)
The variety of products increases

A

c

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is the law of supply

A

as the price of a certain product rises, the quantity supplied by producers will also rise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what is a expansion in the supply curve

A

when there is an increase in the price of i.e shoes causing an expansion in supply, expansion along the curve(upward movement)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

what is a contraction in the supply curve

A

when there is a decrease in the price of i.e shoes causing a contraction in supply(downward movement)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

what factors shift supply

A

cost of inputs, or more firms entering an industry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

if there was a movement to the left in a supply curve what does this imply

A

there has been a decrease in supply
(there are two observations concerning price and quantity)

  1. a decrease in supply means firms will supply a given quantity of goods at a higher price

this is represented by the vertical distance between the curves, where quantity hasn’t changed but price has

  1. a decrease in supply means firms will decrease the quantity of goods at a given price level

this is represented by the horizontal distance between the curves, where quantity has changed but price hasn’t

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

if there was a movement to the right in a supply curve what does this imply

A

there has been an increase in supply
(there are two observations arising concerning price and quantity)

  1. an increase in supply in supply means firms are able to increase the amount of i.e shoes supplied to the market at the same price

this is represented by the horizontal distance between the curves, where the price hasn’t changed but the quantity has

  1. an increase in supply means firms are able to supply a given quantity of goods for a lower price

this is represented by the vertical distance between the curves, where quantity hasn’t changed but price has

showing increases in supply and decreases in price go hand in hand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

what is market equilibrium

A

is where quantity supplied and quantity demanded are the same, represented as the intersection between demand and supply curve

30
Q

what is price mechanism

A

the combined forces of supply and demand

31
Q

what is market failure

A

market failure refers to how the free market only factors in private costs/benefits but fails to consider social ones

because of prorperty rights which allows someone to own a resource and determine how it is used theres no property rights on the environment there for damage
such as the carbon emissions, overfishing, deforestation

leads to overuse

can also happen with
-overproduction
when a firm produces too much of a harmful good or service
i.e over production of cigarettes –> public health declining –> cancer

-under production
when firms produce too little of a beneficial goods or service
i.e lack of investment into certain areas for research such as environmental conservation

32
Q

what is the social marginal cost graph SMC

A

is the graph that includes both private and social costs

33
Q

what is the tragedy of the commons

A

the overuse and depletion of common resources

34
Q

What is the difference between private and social costs and benifits

A

private costs and benefits
-costs and benefits directly related to the consumer and producer only
i.e firm costs are factors of production and cost of service, private benefit revenue

cost for consumer is the price paid for the good or service and the benefit utility gained(happiness)

social costs and benifits
-costs and benifits for the whole of society
-includes private benifits also include external costs and benifits

private costs + externalities = social costs

35
Q

whats the use of the price mechanism

A

to solve basic economic questions such as what/how much to produce

36
Q

what is the formula for social costs

A

private costs + externalities = social costs or benefits external to a private(consumer/firm) considerations when buying

i.e. externalities are borne by the entirety of society whereas its the individual that is borne with private costs and benefits

37
Q

what are externalities

A

costs or benifits

38
Q

what are positive externalititys

A

social benifits > private benifits

i.e musuems (underproduced)
called merits

38
Q

what are negative externalities

A

social benifits/costs < private benefits/costs

i.e oil industry (over produced)

39
Q

what are public goods

A

businesses won’t produce them
key features

1.non rival (they don’t have rivals)
i.e street lamp
2. no excludable
i.e street lamp

40
Q

what is quantity intervention

A

which is the situation where the government intervenes with the market to regulate the quantity produced of a good or service in order to better address the externalities that are ignored by private costs and benifits

41
Q

what is merit goods

A

social benefits purchasing attached to the consumption of goods are not considered when purchasing

which provides a broader social merit
i.g museums, libarys

42
Q

what are public goods

A

goods that firms won’t produce as they cannot exclude people unwilling to pay

i.e military, highways, parks

43
Q

what are price ceilings

A

a maximum price for a good or service is established below the market equilibrium
-aims to help buyers

what is the disadvantage of a price ceiling
it leads to disequilibrium as we have a shortage

44
Q

what is a price floor

A

the minimum price that can be charged for wheat

market disequilibrium because quantity supplied > quantity demanded

surplus in the i.e wheat farm, which is not an efficient allocation of resources

45
Q

what is price elasticity of demand

A

it measures the responsiveness of the quantity demanded to a change in price

46
Q

what is inelastic demand

A

proportionate change in quantity < proportionate change in price

47
Q

what is elastic demand

A

when the quantity demanded is relatively responsive to the price change

i.e change in car wash price

proportionate change in quantity > proportionate to the change in price
= elastic demand

48
Q

what is unit elasticity

A

proportionate change in quantity = proportionate change in price

(1% change in price causes a 1% change in demand)

pretty rare(pretty much impossible)

49
Q

why does price elasticity matter to businesses

A

because businesses need to understand price elasticity to decide on the optimal pricing strategies

i.e paper towel business
decrease price –> increased sales
elastic demand meaning prices are cheaper but demand increases

another example is medicine
increase in price –> small decrease in sales

increased prices = increased revenue

50
Q

how do businesses determine elasticity

A

through market research of tastes and preferences

51
Q

what are inelastic goods

A

goods people can’t live without

i.e medicine

price increases so does revenue

52
Q

what are elastic goods

A

goods people don’t necessarily need

i.e paper towels

as the price increases you can switch to another product

price increases –> revenue decreases

53
Q

why are government interested in elasticity of demand

A

so they can tax on tobacco and alcohol

how will tax impact behaviour –> to predict the amount of revenue and plan for the future doing so they can charge the right for the right good

i.e. excise duty for petrol to raise money (petrol is a inelastic good) increased price won’t affect demand much

54
Q

what is the total outlay method

A

it looks at the effect of changes in price on the revenue earned by the business

total outlay -= price of good x quantity demanded at the price

54
Q

what is another term for total outley

A

revenue

55
Q

how to determine elasticity

A

if price and revenue move in the same direction then its price is inelastic

if price and revenue are opposite in movement then its price elastic

if a price increases and the revenue stays the same than it means its unit elastic

56
Q

how to compare graphs and determine elasticity

A

if the slope is steeper it means its relatively price inelastic(i.e health services and bread) while if the slope is more flat than its relatively elastic demand (i.e carwash and foxtel)

57
Q

what is perfectly inelastic demand

A

consumers will only consume a particular good or service at a particular price

only a horizontal graph
-IF PRICE DEVIATES THAN THERE WILL BE NO DEMAND
I.E apple farmers

58
Q

what is perfectly inelastic demand

A

consumers are willing to pay for any price in order to obtain a given quantity

the demand curve is vertical
-no matter how high or low the price the demand stays the same

i.e hypothetically a consumer with a life threatening disease willing to purchase the drug for any amount

59
Q

what are 4 factors affecting elasticity of demand

A

NEPT

N-necessities and luxuries
-have relatively inelastic demand
i.e. food and water

E-existence of close substitutes
-close substitutes tend to have highly elastic demand
i.e one brand of one cereal increase(still get the same utility)

P-proportion of income
cheaper items = more inelastic
i.e toothbrushes with an increase of $1

expensive items = more elastic
i.e. car with an increase of $1000

T-the length of time since a price change
-if the price increases, it may take time to identify substitutes

-if the price decreases, it may take time to realise the change
i.e dry cleaning, if prices increases it make time time to find a new place when you are still with the cleaning business its inelastic hwoever if you find a substitute you can change meaning then its elastic demand

60
Q

what is price elasticity of supply

A

measures the responsiveness of the quantity supplied to a change in price

when there is a change in the price of a good or service, price elasticity looks at what business choose to do in response

i.e clothing business that specializes on manual labour of clothes, if the price increase it woudn’t be hard to expand

supply is price elastic –> quanitity supplied is strongly affected by the increased price

i.e local boutique hotel
limited amount of rooms and guests(difficult to expand)

supply is price inelastic –> rise in quantity supplied is small compared to increase in price

if quantity supplied rises in proportion to the price increase, supply is unit elastic

61
Q

what is perfectly elastic supply

A

(only at one price)
is the situation where producers will supply the good at one price, and the quantity depends on the demand

i.e the price for a computer stays at a certain price however quantity changes from demand

a horizontal line

i.e meat pie costs $2 to make even if its makes a million more, in this economy consumers can buy as many meat pies without the price changing however they can’t offer a lower price as they will lose money

62
Q

what is perfectly inelastic supply

A

producers will supply a given quantity, regardless of the price of the market

vertical line

i.e van gogh paintings, there are only 100 paintings, the quantity is fixed –> price changes

quantity is fixed

63
Q

what are the three factors influencing elasticity of supply

A
  1. time lags
    -sometimes a changing quantity supplied won’t happen instantly after a price change as it will take a little bit of time before a business can change the output in response
    (how long will this take)(faster they change their output = more elastic)

i.e wheat takes months of previous planning because of this even if the price fails, they couldn’t decrease their output fast
time lag is inelastic in the short-term

2.the ability to hold and store stock
-when prices fall, producers rather wait for the price to go up again instead of selling for a lower price(fruit and vegetable unable to hold for long therefore inelastic)(known as perishable goods)

i.e inelastic
phone
-elastic
furniture

  1. Excess capacity
    -if the business has existing infrastructure, labour or capital that isn’t being used and waiting to be utilised than supply will be elastic in response to a price increase because the business does not have to aquire more inpurts for production

time lag and excess capacity
-is about how quaickly a business can decrease or increase output

ability to hold stock
-can the business hold goods already produced

64
Q

what is pure competition

A

an infinite number of identical firms consumers can buy from. Hard to raise prices above market equilibrium due to competition

key features
1.
-all products in the same industry are the same
-consumers incur no cost from switching suppliers
2.
-no barriers for new businesses entering the market
-no barriers for existing businesses leaving the market
3.
-businesses can sell as much as they like at the market price

called price takers

i.e agriculture like wheat

65
Q

what is monopolistic competition

A

this is a situation where a large number of relatively small firms compete in a market with similar yet non-identical products

i.e. restaurants, tutoring companies

  1. product differentiation
    presenting goods in a unique/different way
    i.e shoe market, different types of shoes

2.have a degree of market power over the price because they produce different goods
i.e nike with shoes

3.few barriers for new firms entering market, loyalty limits extending customer base
i.e loyalty to a shoe company

66
Q

what is oligopoly

A

much less firm (2-5) and lots of market power

  1. lots of market power
    -large share of the market
    i.e apple and microsoft

2.large barriers for entry
-firms are big and invest in logistics/efficiency

  1. one firm’s influence decisions can influence another
    -can ‘collude’ to keep prices high
67
Q

what is monopoly

A

one business has almost complete control over the price

  1. complete control over price and quantity

2.no substitutes

3.significant barriers to entry

i.e water supply, which is hard for a company to set up where another exists leading to profit maximisation

68
Q
A
69
Q

what is market power

A

the influence a business has on price and quantity

ECONOMICS (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions