W1 Flashcards
When the price changes and other factors remain unchanged, what happens on the curve?
Movement along the curve occurs
When a factor other than the price of the good itself changes, what occurs on the curve?
A shift
Income elasticity will always be ___________; price elasticity will always be _____________.
Positive; negative
Possible causes for a RIGHTWARD SHIFT in the supply curve
Fall in production costs
reduced profitability of alternative products that could be supplied
Increased profitability of goods in joint supply
Benign/nature shocks
Expectations of a fall in price
What happens to the price when supply increases or is greater than demand?
Price falls
What happens to the price of a product when its demand increases or is greater than its supply?
Price increases
The lower half of the market equilibrium intersection
Deficit (Demand > Supply)
The upper half of a market equilibrium intersection
Surplus (Supply > Demand)
Occurs when buyers and salers interact to exchange goods and services
A market
Factors affecting supply
Production costs
Profitability of alternative products
Natural and random shocks
Aims of producers
The supply curve has what kind of relationship and what does it mean?
Direct relationship - supply increases when price increases
The willingness and ability of producers to produce at each and every price in a given period + all others are unchanged
Supply
Income elasticity of demand (IED) formula
% change in quantity demanded / corresponding % change in income
Income elasticity of demand
examines how the quantity demanded responds to a change in consumer incomes
A factor that determines PED
Differentiation
Time period
Brand loyalty
Who’s paying
Proportion of income spent on the good
Awareness and availability of substitutes
The product’s nature
Responsiveness of quantity demanded to changes in the price of the good or service. (How much does price affect the quantity demanded?)
Price Elasticity of Demand
Measures how sensitive the demand of a product is relative to changes in a variable such as price or income
Elasticity of demand
PED Formula (Price elasticity of demand)
% change in quantity demanded / corresponding % change in price
Elasticity of demand formula
% change in the quantity demanded / % change in a variable
Why does a movement along the curve happen?
Because of the change in a product’s price
The quantity that consumers are willing and able buy at each and every price, all other things being unchanged over a given time period
Demand
Generally considered downward-sloping
Demand curve
Products that can act as alternatives for they serve a similar purpose
Substitute goods
Goods which are used together
Complementary goods
Kind of goods with demand that can slope upward
Giffen (essential for survival) and Veblen (conspicuous/high quality & branded) goods
Veblen goods
High quality and branded products
Giffen goods
Basic products essential for survival
The only reason why movements along the curve occur
A change in price (usually of a good itself)
A shift in demand / a shift in the demand curve happens when
a change in ANY FACTOR OTHER THAN PRICE which affects the quantity demanded at each and every price happens
Possible causes for rise in demand
Rise in consumer income
Preferences/tastes towards x product
Rise in price of substitute goods/competitors’ offerings
Fall in price of complementary goods
Expectations of an imminent rise in price
The sensitivity of the demand of a product which changes in relation to a variable such as price and income
Elasticity of demand
A shift to the right signals what? A shift to the left signals what?
Right: Increase
Left: Decrease
Goods for which demand decreases as income increases
Inferior goods
Four resources in an economy
Land, labor, capital, and entrepreneurship
Opportunity cost
involves the sacrifice made when a particular course of action is taken
Human wants are …
unlimited
How to efficiently use limited resources represents the concept of ….
choice
A product that shrinks/recedes inside the PPF curve shows an ….
under utilization of resources
When a growing economy is visualized through a leap outside the PPF curve, what does it show?
Extreme efficiency/efficient uses of resources; economic growth
What does the PPF assume?
It assumes that all inputs are used efficiently.
What does the PPF show?
The maximum output possibilities for 2 goods, given a set of inputs of resources and factors
Normative economics is based on … Positive economics is based on …
opinions; facts
Macroeconomics focuses on..
The economy as a whole of a nation
Microeconomics focuses on
Specific/particular/individual markets
What are the 3 kinds of economies?
A planned economy, a free market economy, and a mixed economy
The 3 key economic questions
What is produced? How is it produced? For whom is it produced?
Resources in an economy are __________. This is the concept of ….
scarcity
MI or MA: Employment by individual industries and businesses
Microeconomics
MI or MA: Distribution of income and wealth
Microeconomics
When the value of elasticity (price or income) is higher than 1, it is …
elastic
When the value of elasticity (price or income) is 1 or lower than 1, it is …
inelastic
