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IGCSE Economics > Unit 2.2 How Markets Work > Flashcards

Unit 2.2 How Markets Work Flashcards

1
Q

Demand

A
  • The willingness and ability of consumers to purchase goods/services at different prices
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2
Q

Law of Demand

A
  • Ceterus Paribus, when the price of a product is increased, the quantity demanded will decrease, and vice-versa.
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3
Q

Quantity Demanded

A
  • The amount of a particular good or service that consumers are willing to buy at a given price.
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4
Q

Demand Curve

A
  • Plotting the (market) quantity demanded for a particular product at every given price.
  • x axis = Quantity Demanded
  • y axis = Price
  • Downward sloping Curve
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5
Q

Individual Demand/Supply

A

Demand/Supply trends of just one consumer/producer

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6
Q

Market Demand/Supply

A

Total Demand/Supply of the product from all consumers/producers.

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7
Q

Extension in demand

A
  • Right+Downward Movement along the demand curve.

- Caused by a decrease in price of a product.

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8
Q

Contraction in demand

A
  • Left+upward Movement along the demand curve

- Caused by an increase in price of a product.

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9
Q

Shift in Demand

A
  • Movement of the demand itself (the entire curve shifts left or right)
  • The quantity demanded changes at every given price
  • Caused because of NON PRICE FACTORS CHANGING
  • Leftward Shift = Decrease
  • Rightward Shift = Increase
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10
Q

Rightward Shift of Demand Curve

A
  • Increase in quantity demanded for every given price, because of a NON PRICE FACTOR
    Causes:
  • An Increase in consumers’ incomes (like a rise in employment rates)
  • A reduction of taxes on incomes
  • A rise in the price of substitutes
  • A fall in the price of complements
  • Consumers’ tastes or fashions changing in favor of the product.
  • Increased advertising of the product,
  • A rise in the population
  • External Factors (weather, nature, unpredictabilities)
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11
Q

Leftward Shift of Demand Curve

A
  • Decrease in quantity demanded for every given price because of a NON PRICE FACTOR
    Causes:
  • A decrease in consumers’ incomes
  • An increase in taxes on incomes
  • A fall in the price of substitutes
  • A rise in the price of complements
  • Consumers’ tastes and fashions changing in favor of other products
  • Decreased advertising (being cut or banned)
  • A fall in the population
  • External Factors (weather, nature, unpredictabilities)
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12
Q

Non Price Factors

A

External Factors affecting the general trends in demand and supply

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13
Q

Inferior Good

A
  • A good for which demand falls as incomes rise

- Considered cheap or frugal

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14
Q

Disposable Income

A
  • The amount of income people have left to spend after taxes on their incomes have been deducted.
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15
Q

Supply

A
  • The willingness and ability of producers to produce and sell goods/services at different prices.
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16
Q

Law of Supply

A
  • Ceterus Paribus, when the price of a product is increased, the quantity supplied will increase, and vice-versa.
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17
Q

Quantity Supplied

A
  • The amount of a particular good or service that producers are willing and able to produce and sell at a given price.
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18
Q

Supply Curve

A
  • Plotting the (market) quantity supplied for a particular product at every given price.
  • x axis = Quantity Demanded
  • y axis = Price
  • Upward sloping Curve
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19
Q

Extension in Supply

A

Right+Upward Movement along the supply curve.

- Caused by an increase in price of a product.

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20
Q

Contraction in Supply

A

Left+Downward Movement along the supply curve.

- Caused by a decrease in price of a product.

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21
Q

Shift in Supply

A
  • Movement of the supply itself (the entire curve shifts left or right)
  • The quantity supplied changes at every given price
  • Caused because of NON PRICE FACTORS CHANGING
  • Leftward Shift = Decrease
  • Rightward Shift = Increase
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22
Q

Rightward Shift in Supply Curve

A
  • Increase in quantity supplied for every given price, because of a NON PRICE FACTOR
    Causes:
  • A decrease in the price and profitability of other products
  • A decrease in the cost of the factors of production (raw materials)
  • An increase in availability of resources
  • Technical Progress and improvements in production processes
  • An increase in business optimism and projections of profit
  • The government paying subsidies
  • The government cutting taxes on profits
  • External Factors (weather, nature, unpredictabilities)
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23
Q

Leftward Shift in Supply Curve

A
  • Decrease in quantity supplied for every given price, because of a NON PRICE FACTOR
    Causes:
  • An increase in the price and profitability of other products
  • An increase in the cost of the factors of production (raw materials)
  • A decrease in availabilty of resources
  • Technical failures
  • A decrease in business optimism and projections of profit
  • The government withdrawing subsidies
  • The government increasing taxes on profits
  • External Factors (weather, nature, unpredictabilities)
24
Q

Market Price

A
  • The price for which the quantity demanded and quantity supplied are equal
  • Point of intersection between the demand and supply curves
  • The price at which the market remains at
25
Q

Equilibrium

A
  • A situation where the quantity demanded is equal to the quantity supplied
26
Q

Disequilibrium

A
  • A situation where the quantity supplied and quantity demanded are not equal.
27
Q

Shortage

A
  • Type of disequilibrium
  • When the quantity demanded is greater than the quantity supplied
  • Any price lower than the equilibrium price
  • Any point below the intersection point.
  • Price needs to increase to return to equilibrium
28
Q

Surplus

A
  • Type of disequilibrium
  • When the quantity demanded is less than the quantity supplied
  • Any price higher than the equilibrium price
  • Any point above the intersection point.
  • Price needs to decrease to return to equilibrium
29
Q

Shift in Demand Curve

A
  • Demand goes from D to D1
  • Supply Stays at S
  • Equilibrium Price moves from P1 to P2
  • Final Quantity Demanded/Supplied moves from Q1 to Q2
  • Leftward Shift -> Equilibrium Price Decreases
    D1 Equilibrium Price Increases
    D1>D; P1>P; Q1>Q
30
Q

Shift in Supply Curve

A
  • Supply goes from S to S1
  • Demand Stays at D
  • Equilibrium Price moves from P1 to P2
  • Final Quantity Demanded/Supplied moves from Q1 to Q2
  • Leftward Shift -> Equilibrium Price Decreases
    S2P1; Q2 Equilibrium Price Increases
    S2>S1; P2Q1
31
Q

Price Elasticity of Demand

A
  • The extent of the response of the quantity demanded to the change in price.
  • How severely does QD increase of decrease with a change in price.
  • Denoted by the inverse of the slope of the demand curve
  • Sign is usually negative, but does not really matter

Formula:

    % Change in Price
32
Q

Elastic Demand

A
  • When a change in price leads to a greater change in quantity demanded.
  • |PED| > 1
  • Prices are usually decreased
33
Q

Inelastic Demand

A
  • When a change in price leads to a smaller change in quantity demanded
  • |PED|<1
  • Prices are usually increased
34
Q

Unitary Elastic Demand

A
  • When a change in price leads to an equal change in quantity demanded.
  • |PED| = 1
35
Q

Perfectly Inelastic Demand

A
  • When a change in price leads to no change in quantity demanded.
  • |PED| = 0
36
Q

Factors Causing Elastic Demand

A
  • It is a luxury good (wants)
  • Substitutes exist and are easily available
  • Consumption can be postponed
  • Large part of total expenditure
  • Low Income Level Consumers
  • Significant (Relatively High) Prices
  • Less or no brand loyalty
37
Q

Factors causing Inelastic Demand

A
  • It is a necessary good (needs)
  • Substitutes do not exist or are not easily available
  • Consumption is immediate
  • Small part of total expenditure
  • High Income Level Consumers
  • Insignificant (Relatively Low) Prices
  • High Brand Loyalty
38
Q

Price Elasticity of Supply

A
  • The extent of the response of the quantity supplied to the change in price.
  • How severely does QS increase or decrease with a change in price.
  • Denoted by the inverse of the slope of the supply curve
  • Sign is usually positive, but does not really matter

Formula:

    % Change in Price
39
Q

Elastic Supply

A
  • When a change in price leads to a greater change in quantity supplied.
  • |PES| > 1
40
Q

Inelastic Supply

A
  • When a change in price leads to a smaller change in quantity supplied.
  • |PES| < 1
41
Q

Perfectly Elastic Demand

A
  • When a change in price leads to an infinite change in quantity demanded
  • |PES| = infinity
42
Q

Unitary Elastic Supply

A
  • When a change in price leads to an equal change in quantity supplied
  • |PES| = 1
43
Q

Perfectly Elastic Supply

A
  • When a change in price leads to an infinite change in quantity supplied
  • |PES| = infinity
44
Q

Perfectly Inelastic Supply

A
  • When a change in price leads to no change in quantity supplied
  • |PES| = 0
45
Q

Factors Causing Elastic Supply

A
  • It takes a short time to produce the goods
  • Resources are easily available
  • Products can be stored for a long time
46
Q

Factors Causing Inelastic Supply

A
  • It takes a long time to produce the goods
  • Resources are unavailable (very scarce)
  • Products are perishable and cannot be stored for long times
47
Q

Taxes

A
  • A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures.
48
Q

Direct Taxes

A
  • Taxes levied directly to consumers (income tax)
49
Q

Indirect Taxes

A
  • Taxes levied indirectly to producers and consumers through goods and services
  • Can be regarded as an additional cost of production
  • Two types: Specific Tax and Percentage Tax
50
Q

Specific Taxes

A
  • Type of indirect tax
  • Does not vary with quantity or price
  • One specific amount added to price of one unit.
  • S1 + tax is parallel to S (upward)
51
Q

Splitting the Burden of Specific Taxes

A
  • Burden of the tax is split between the consumers and producers.
  • Consumers end up paying higher prices foe the product
  • Producers face an increased cost of production.
  • Elastic Demand -> Producers bear more burden
  • Inelastic Demand -> Consumers bear more burden.
  • Supply curve shifts leftward (appear upward)
  • Equilibrium Price is Higher
52
Q

Percentage Taxes

A
  • Type of indirect tax
  • Varies with the price (percentage of price of one unit)
  • S1+tax is not parallel to S. (upward)
53
Q

Impact

A
  • On whom the taxes are originally levied
54
Q

Incidence

A
  • Who ends up paying the burden (majority of it)
55
Q

Subsidies

A
  • Direct or indirect payment to individuals or firms usually in thr form of cash payments by the government.
  • Money + Resources provided by gov to encourage production and development of a product. (May or may not be taken back)
  • Reduces cost of production
  • Rightward (appear downward) move of the Supply Curve
56
Q

Stakeholders

A

Anyone who is impacted positively or negatively by the imposing of something

57
Q

Stakeholders of Tax

A
  • Consumers (They pay higher prices)
  • Government (They gain more money)
  • Producers (They lose or gain money - based on how the burden is split)

IGCSE Economics (5 decks)

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