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Economics > Unit 2Role Of Markets > Flashcards

Unit 2Role Of Markets Flashcards

1
Q

What is meant by the division of labour

A

The separation of work process into a number of tasks with each task performed by a separate person or group of persons

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2
Q

How do specialisation and the division help to address the basic economic problem

A

Allows firm to take advantage of economies of scale. So as production increases, average unit cost decrease

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3
Q

What is a barter system

A

Any exchange of goods and services for other goods and services without exchanging any form of money

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4
Q

What is meant by double coincidence of wants

A

An economic phenomenon where two parties each hold an item that the other wants so they exchange these items directly

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5
Q

What are various roles of money

A

Store of value, unit of account, medium of exchange

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6
Q

Why is money acting as a medium of exchange so important in economy

A

Eliminates the need for complex trading systems to exchange various commodities and services in a bartered way

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7
Q

What is productivity in economics and why’s it important

A

How much output can be produced with a given set of inputs.
Productivity increases when more output produced

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8
Q

What is demand in economics

A

The willingness and ability of a consumer to buy goods and services at a specific price

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9
Q

Why is demand curve downward sloping

A

The number of unit demands increase with a fall in price

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10
Q

How does a change in price affect the quantity demanded in the market

A

Demand will go down of price goes up
Demand will go up if price goes down

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11
Q

What causes demand curve to shift

A

Consumer income prices of related goods consumers tastes and preferences expectations for the future and change in population

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12
Q

How do we derive the demand curve for an entire market

A

Adding up all of the individual demand curves

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13
Q

What is joint demand

A

A situation where the demand for one product or service generates demand and for another related product or service

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14
Q

What is competitive demand

A

When customers can choose from alternative services or products

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15
Q

What is composite demand

A

Where goods have more then one use
.milk

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16
Q

What are complementary goods

A

Two or more goods that consumers usually use together so change in price for one impacts other
Milk and cereal

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17
Q

What are substitutes

A

A product or service that can be used in replacement for each other

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18
Q

What is supply

A

The total amount of a specific good or service that is available to consumers

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19
Q

How do we derive the supply curve

A

Depends critically on the firms costs function

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20
Q

Why is the market supply curve upward sloping

A

As the price of a given commodity increases the quantity supplied will increase

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21
Q

What is an increase/decrease in supply

A

An increase or decrease in the quantity supplied that is paired with a higher or lower supply price

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22
Q

What factors cause the supply curve to shift

A

.changes in input prices
.innovations in technology
.changes in prices of relayed goods
.changes in the number of producers

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23
Q

What is meant by joint supply in economics

A

A product or process that can yield two or more outputs

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24
Q

What is meant by competitive supply

A

Alternative products a firm could make with its resources

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25
Q

What is consumer surplus

A

When the price consumers pay for a product or service is less than the price they’re willing to pay

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26
Q

What is market equilibrium

A

The price and quantity point at which market supply and market demand for an item are equal

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27
Q

What is excess supply

A

Occurs when the quantity supplied of a product or service exceeds the quantity demanded at a given price level

28
Q

What is excess demand

A

Occurs when the price of food is lower than the equilibrium price

29
Q

What factors cause equilibrium price to rise

A

An increase in demand will cause an increase in the equilibrium price and quantity of a good

30
Q

An increase in equilibrium price and equilibrium quantity to fall

A

A decrease in supply

31
Q

What causes equilibrium price and quantity to fall

A

A decrease un demand

32
Q

Equilibrium price to fall but quantity to rise

A

A decrease in supply

33
Q

Might cause a contraction of supply

A

A fall in in price of a commodity leads to decrease in quantity supplied of a commodity

34
Q

Might causes an extension in supply

A

Change in technology
Production costs
Taxes
Subsidies
Avability of raw materials

35
Q

Contraction of demand

A

An increase in price

36
Q

Factors that cause extension in demand

A

Expectations
Income
Prices of related goods
Consumer preferences

37
Q

Elasticity definition

A

The responsiveness of one variable to changes in another variable

38
Q

4 types of elasticity

A

Price elasticity of demand
Price elasticity of supply
Cross elasticity of supply/demand
Income elasticity of demand

39
Q

What is PED

A

Price elasticity of demand
Percentage change in quantity demanded divided by percentage change in price

40
Q

What do ped numbers tell us

A

If number is 0.9 to -0.9 it’s Inelastic
My other number it’s elastic

41
Q

PED relationship with revenue

A

If PED value is elastic price increases results in lower revenue

42
Q

Is PED along a demand curve always the same

A

It’s the same at every point

43
Q

What factors determine a firms PED

A

The availability of substitutes
Time frame
Brand loyalty
Level or competition

44
Q

YED

A

Income elasticity of demand
Percentage change in quantity demanded divided by percentage change in income

45
Q

What do yed values tell us

A

Greater then 1 is elastic

46
Q

Normal good

A

Consumers products such as food and clothing that show a direct relationship between demand and income

47
Q

Inferior good

A

Item that becomes less desirable as the income of consumers increase

48
Q

XED

A

Measure or how responsive the demand is for good a when there’s a price change in good b
%change in quantity demanded for good A divided by % change in proce of good B

49
Q

PES

A

Shows how responsive the quantity supplied of a good or service is to a change in price of its costs
%change in quantity supplied divided by % change in price

50
Q

What factors determine a good or service YED

A

The avability of substitute goods
The necessity of good or service

51
Q

What factors determine PES

A

The numbers of producers spare capacity ease of switching ease of storage , length of production period, time period of training, factor mobility and how costs react.

52
Q

Marginal utility

A

The added satisfaction that a consumer gets from having inexpensive more unit of a good or service

53
Q

Total utility

A

The overall satisfaction that a consumer derives from the consumption of a particular goods and services

54
Q

Average utility

A

The utility that is obtained by the consumer per unit of commodity consumed

55
Q

What is diminishing marginal utility

A

The phenomenon that each additional unit of gain leads to an ever smaller increase in subjective value

56
Q

How does diminishing marginal utility affect the demand curve

A

Demand curves are downward sloping in microeconomics models as each additional unit of a product or service is put towards a less valuable use

57
Q

What is market failure

A

The economic situation defined by an inefficient distribution of goods and services in a free market

58
Q

Why do markets fail

A

Negative externalities
Incomplete information
Concentrated market power
Inefficiencies in production

59
Q

What are externalities

A

A side effect or consequence of an activity that is not reflects in the cost of that activity and not primarily borne by those directly involved in said activity

60
Q

What is marginal social costs

A

The cost that society pays as a result of the production of additional units or utilization of a good or service

61
Q

What are marginal external costs

A

The cost of an additional unit of output that is incurred by someone other then the producer

62
Q

What are marginal private costs

A

The costs for the producer of producing an additional unit of output

63
Q

What is social marginal benefit

A

The satisfaction experienced by consumers of a specific good plus or minus the overall environmental and social costs or benefits

64
Q

What is marginal private benefit

A

The benefit a consumer enjoys by consumer an extra unit of the good or service

65
Q

What is marginal external benefit

A

The additional benefit imposed in third parties by the consumption of an extra unit of a good or service

66
Q

What government interventions can correct market failures

A

Indirect taxation - a fall in supply and increase in cost to individuals so the supply curve shifts

Economics (3 decks)

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