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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
What is consumer surplus
When the price consumers pay for a product or service is less than the price they’re willing to pay
26
What is market equilibrium
The price and quantity point at which market supply and market demand for an item are equal
27
What is excess supply
Occurs when the quantity supplied of a product or service exceeds the quantity demanded at a given price level
28
What is excess demand
Occurs when the price of food is lower than the equilibrium price
29
What factors cause equilibrium price to rise
An increase in demand will cause an increase in the equilibrium price and quantity of a good
30
An increase in equilibrium price and equilibrium quantity to fall
A decrease in supply
31
What causes equilibrium price and quantity to fall
A decrease un demand
32
Equilibrium price to fall but quantity to rise
A decrease in supply
33
Might cause a contraction of supply
A fall in in price of a commodity leads to decrease in quantity supplied of a commodity
34
Might causes an extension in supply
Change in technology Production costs Taxes Subsidies Avability of raw materials
35
Contraction of demand
An increase in price
36
Factors that cause extension in demand
Expectations Income Prices of related goods Consumer preferences
37
Elasticity definition
The responsiveness of one variable to changes in another variable
38
4 types of elasticity
Price elasticity of demand Price elasticity of supply Cross elasticity of supply/demand Income elasticity of demand
39
What is PED
Price elasticity of demand Percentage change in quantity demanded divided by percentage change in price
40
What do ped numbers tell us
If number is 0.9 to -0.9 it’s Inelastic My other number it’s elastic
41
PED relationship with revenue
If PED value is elastic price increases results in lower revenue
42
Is PED along a demand curve always the same
It’s the same at every point
43
What factors determine a firms PED
The availability of substitutes Time frame Brand loyalty Level or competition
44
YED
Income elasticity of demand Percentage change in quantity demanded divided by percentage change in income
45
What do yed values tell us
Greater then 1 is elastic
46
Normal good
Consumers products such as food and clothing that show a direct relationship between demand and income
47
Inferior good
Item that becomes less desirable as the income of consumers increase
48
XED
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
PES
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
What factors determine a good or service YED
The avability of substitute goods The necessity of good or service
51
What factors determine PES
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
Marginal utility
The added satisfaction that a consumer gets from having inexpensive more unit of a good or service
53
Total utility
The overall satisfaction that a consumer derives from the consumption of a particular goods and services
54
Average utility
The utility that is obtained by the consumer per unit of commodity consumed
55
What is diminishing marginal utility
The phenomenon that each additional unit of gain leads to an ever smaller increase in subjective value
56
How does diminishing marginal utility affect the demand curve
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
What is market failure
The economic situation defined by an inefficient distribution of goods and services in a free market
58
Why do markets fail
Negative externalities Incomplete information Concentrated market power Inefficiencies in production
59
What are externalities
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
What is marginal social costs
The cost that society pays as a result of the production of additional units or utilization of a good or service
61
What are marginal external costs
The cost of an additional unit of output that is incurred by someone other then the producer
62
What are marginal private costs
The costs for the producer of producing an additional unit of output
63
What is social marginal benefit
The satisfaction experienced by consumers of a specific good plus or minus the overall environmental and social costs or benefits
64
What is marginal private benefit
The benefit a consumer enjoys by consumer an extra unit of the good or service
65
What is marginal external benefit
The additional benefit imposed in third parties by the consumption of an extra unit of a good or service
66
What government interventions can correct market failures
Indirect taxation - a fall in supply and increase in cost to individuals so the supply curve shifts

Economics (3 decks)

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