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Economics Micro > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

What is a market?

A

Voluntary meeting of buyers and sellers.

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2
Q

What is a competitive market?

A

Large numbers of buyers and sellers that all accept the market price.

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3
Q

What are highly competitive markets lacking?

A

They lack entry and exit barriers

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4
Q

When is there a movement along a curve?

A

When the price changes

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5
Q

What is PED?

A

PED: the responsiveness of demand to a change in price

% change in qd / % change in price

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6
Q

What are the coefficients for PED?

A 
0 - Perfectly inelastic
0<1 Price inelastic
1 Unitary
1>Infinity Price elastic
Infinity Perfectly Elastic
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7
Q

What are the determinants of PED?

A

Substitutes
Time
Definition of the market

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8
Q

What is YED?

A

Income Elasticity
The responsiveness of demand to a change in income
% change in qd / % change in income

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9
Q

What are the coefficients of YED?

A

-1+1 = elastic

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10
Q

Determinants of YED?

A
  • Whether good is a necessity or luxury

- Level of income of consumers

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11
Q

What is XED?

A

Measurement of responsiveness to demand of good x with a change in price of good y
% change of qd of x / % change in price of good y

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12
Q

What are the coefficients of XED?

A

-1+1 = elastic

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13
Q

What are the determinants of XED?

A
  • Substitutes
  • Complement
  • Has no relationship
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14
Q

What is market supply?

A

Just the sum of the supply of all the firms or producers in the market at different market prices

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15
Q

What factors influence supply?

A
  • Price of good
  • Impact of changing costs of production
  • Technological progress
  • Prices of other goods/services
  • Government policy
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16
Q

What is marginal cost?

A

The addition to a firms cost from making an additional unit of output

17
Q

What are relevant costs?

A

Those that are used to make decisions on investments

18
Q

What is the MES

A

The scale of production where the LRACC is at is lowest point

19
Q

What is productive efficiency?

A

Where no additional output can be produced from the factor inputs available at the lowest point on the LRACC

20
Q

What is the significance of the L shaped ACC?

A

In a natural monopoly it is believed to always have lowering costs, this suggests that the firm should continue to increase output in order to gain more profit. This creates the high barriers to entry

21
Q

How to calculate marginal revenue?

A

change in total revenue / change in output

22
Q

How to calculate average revenue?

A

Total revenue / quantity

23
Q

How to calculate total revenue?

A

Quantity x Price

24
Q

What is normal profit?

A

Minimum profit a firm must must make to stay in business

25
Q

What is abnormal profit?

A

Profit above the normal profit level

26
Q

What is the role of profit?

A 
Business/workers/shareholder incentives
Profits and resource allocation
Profit and economic efficiencies
Profit for business finance
Profit as a reward of risk
27
Q

What is technological change?

A

Improving existing technologies and the development of completely new technologies

28
Q

What is innovation?

A

the creation of market for the invention in order to make a profit

29
Q

What is sustaining innovation?

A

Develops existing markets enabling firms to offer better value and often to compete against each other

30
Q

What is destructive innovation?

A

Creates a whole new market and disrupts an existing market over time

31
Q

What are some effects of innovation?

A
  • Old firms lose market share
  • Workers are displaced by machines
  • New firms create employment
32
Q

What is dynamic efficiency?

A

Development of new products and more efficient processes that improve productive efficiency in the LR

Economics Micro (5 decks)

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