unit 2 Flashcards
what is meaning of microeconomics
Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
what is macroeconomics
Macroeconomics is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and government spending to regulate an economy’s growth and stability. This includes regional, national, and global economies.
what is demand
The willingness and ability of a consumer to purchase a good or service.
what is law of demand
States that there is an inverse or negative relationship between price (P) and quantity demanded (Qd).
what is supply
The willingness and ability of a producer to supply a good or service.
what is law of supply
States that there is a direct or positive relationship between price (P) and quantity supplied (Qs).
name the 6 non-price determinants of DEMAND
- changes in disposable income
- changes in consumer preference, taste, trends
- changes in population
- changes in weather/season
- advertising
- changes in price and availability of related goods and services
define changes in disposable income
Gross income - Income tax = Disposable income
Increase in salary/wages = Increase disposable income = Increase demand
Increase in income tax = Decrease disposable income = Decrease demand
define changes in consumer preference, taste, trends
Increasing popularity of a brand’s product= Increase demand
Negative controversy surrounding a brand = Decrease demand
define changes in population
An increase in birth rates would increase the demand for baby goods and services such as pampers, milk formula, baby clothing etc.
An increase in death rates of elderly would increase the demand for coffins, flowers, funeral services and decrease the demand for nursing home services, elderly healthcare etc.
define changes in weather/season
During rainy days/seasons, the demand for umbrellas, raincoats, rain boots will increase and the demand for paid outdoor activities like theme parks will decrease.
During cold days/seasons, the demand for jackets, scarves, hot beverages will increase and the demand for ice cream and cold beverages will decrease.
define advertising
Successful advertising campaigns will increase the demand for a product.
define changes in price and availability of related goods and services
Main product: Coke
Substitute: Pepsi (Strong substitute)
Increase in price of Pepsi = Decrease Qd of Pepsi = Increase D for Coke.
define the complements
Main product: Toothbrush
Complement: Toothpaste (Strong complement)
Increase in price of toothpaste = Decrease Qd of toothpaste = Decrease D for toothbrush.
name the 6 non-price determents of SUPPLY
- changes in cost of production
- technological advancements
- changes in profitability of other products
- changes in government policy
- changes in availability of resources
- changes in weather/climate
define price determination
Market prices (market clearing price or equilibrium price) are determined by market forces.
Market forces: Factors that have the ability to affect the market (demand and supply).
define market equilibrium
A state where there is balance between demand and supply. It is the point at which demand intersects with supply, resulting in market/equilibrium price and market/equilibrium quantity.
define market disequilibrium
A state where there is imbalance between demand and supply. It usually occurs when supply exceeds the level of demand or demand exceeds available supply.
what is Price Elasticity of Demand (PED)
PED is the responsiveness of the change in quantity demanded to a change in price.
Write the elastic factors influencing PED
Luxury and non-essential products
Many substitutes
Large proportion of income
Long time period
No branding / Generic
Not addictive
write the factors influencing PED
Nature of product / Degree of necessity
Number of substitutes
Proportion of income
Time period
Other factors
write the inelastic factors influencing PED
Necessities and essential products
No / Few substitutes
Small proportion of income
Short time period
Strong brand loyalty
Addictive
what is Price Elasticity of Supply (PES)
PES is the responsiveness of the change in quantity supplied to a change in price.
write the elastic factors influencing PES
A lot of spare capacity and unused resources
Able and feasible to store
Low cost and short duration
Long time period
Mobile FOP
write factors influencing PES
Degree of spare capacity
Ability to store inventory
Cost and duration of production
Time period
Factor mobility
write inelastic factors influencing PES
No spare capacity and full employment of resources
Unable and unfeasible to store (usually perishable)
High cost and long duration
Short time period
Immobile FOP
