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Eco > Week 2 > Flashcards

Week 2 Flashcards

1
Q

Define market

A

a group of buyers and sellers of a particular good or service

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2
Q

Define competitive market

A

A market in which there are many buyers and sellers so that each has little impact on the market price (price takers)

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3
Q

Define the law of demand

A

all things being equal - the quantity demanded of a good falls as the price of the good rises

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4
Q

what is ‘collective action’

A

Private sacrifice for the greater common good

e.g. tackling climate change

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5
Q

what is strategic intervention

A

Private and public goods e.g. cooperative and uncooperative outcomes

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6
Q

Define demand schedule

A

A table that shows the relationship between price of a good and the quantity demanded

Demand curve = relationship between price and quantity demanded

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7
Q

Define normal good

A

An increase in income leads to an increase in quantity demanded

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8
Q

Define inferior good

A

An increase in income leader to a decrease in quantity demanded

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9
Q

Define substitutes

A

two goods for which a decrease in the price of one good leads to a decrease in demand for the other good

e.g. ferrari sale = less demand for mclaren

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10
Q

Define complements

A

(e.g. tv and dvds)

Two goods for which a decrease in the price of one good leads o an increase in demand for the other

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11
Q

Mechanisms for allocating scare resources

A

Markets
–Fixed prices, auctions, matching other than price

Hierarchies
–Central planners & Administrators

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12
Q

To reach the highest form of competition a market must:

A
  1. Offer goods that are exactly the same (homogenous)

2. There are so many buyers and sellers that individuals do not influence the market price

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13
Q

Source of demand

A
  • Survival (needs)
  • Desire (wants)

Determinant of quantity demanded:
• Price of good (P)

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14
Q

Determinants of demand

A
  • Price of substitutes and complements (shift)
  • Income (movement along demand curve)
  • Tastes and preferences (shift)
  • Expectations (shift)
  • Number of consumers (shift)

(TENPI)

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15
Q

differences between shifts and contractions

A

Movement ALONG a demand curve

•SHIFT in the demand curve

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16
Q

Source of supply

A

Individuals supply labour effort

–Businesses supply raw materials and finished products –Organisations supply services

17
Q

Determinants of quantity supplied

A 
•	Determinants of Supply:
Price Of Related Commodity (Py) 
•	Factor Cost (w)
•	Number Of Suppliers (Ns) 
•	Technology (Tech)
•	Seller Expectations (Expects)
18
Q

Define the law of supply

A

quantity supplied will increase as the price of the good rises

19
Q

Define equilibrium price

A

The price that balances quantity supplied and quantity demanded

20
Q

difference between surplus and shortage

A

Surplus = Situation in which quantity supplied is greater than quantity demanded

Shortage = Situation in which quantity demanded is greater than quantity supplied

*see diagram page 82 *

21
Q

what do prices do

A

reflect scarcity

22
Q

explain Pareto efficiency

A

can’t make any one person better off, without making someone else worse off
• Occurs when
Price = Marginal Benefit = Marginal Cost

23
Q

Define welfare economics

A

Study of how the allocation resources effects economic wellbeing

24
Q

Define consumer surplus

A

A buyers willingness to pay minus the amount the actually pays
• The area lying below the demand curve and above the equilibrium price
• What they think it’s worth – what they pay

willingness to pay = The maximum amount that a buyer will pay for a good

25
Q

Define producer surplus

A

The amount a seller is paid for a good minus the sellers cost
• Area lying above the supply curve and below the equilibrium price

26
Q

Factors affecting demand

A
  1. Income
  2. Price of related goods (substitutes + complements)
  3. Tastes
  4. Preferences
  5. Number of buyers
27
Q

what are sunk costs

A

Some costs are not included by economists, while they are included by non-economists. Costs are sunk when the expenditure has been completed and cannot be recovered. Sunk costs should be ignored in subsequent rational decisions. Sometimes some of the costs can be recovered but some are sunk, e.g. there may be some resale value

Eco (9 decks)

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