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The economic business environment > Week 2 - the microeconomic environment > Flashcards

Week 2 - the microeconomic environment Flashcards

1
Q

What are 3 factors of the internal environment

A
  • suppliers
  • customers
  • competitors
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2
Q

What is demand

A

The ability and willingness to buy a specific quantity of goods in a given time period

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3
Q

What does effective demand represent

A

1 desire to purchase
2 ability to pay
3 willingness to pay

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4
Q

What is the law of demand

A

When the price of a product goes up = demand will decrease
When the price of a product goes down = the quantity demanded will go up

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5
Q

What does the demand curve relate to

A

the relationship between price and demand

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6
Q

What will external, non- profit factors do to the demand curve

A

Shift the curve

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7
Q

External factors shifting the demand curve

A
  • consumer income
  • tastes and preferences
  • number of buyers
  • price of alternatives
  • expectations of future prices
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8
Q

What is consumer surplus

A

The value consumers get from a good but do not have to pay for

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9
Q

How to calculate consumer surplus

A

reservation price - real price

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10
Q

What is supply

A

The ability and willingness to sell or produce in a given period of time

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11
Q

What is the law of supply

A

the ability and willingness to sell or produce in a given period of time

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12
Q

The law of supply

A

When the price of a product goes up = quantity supplied will go up
When the price of a product goes down = quantity supplied will decrease

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13
Q

Factors impacting supply

A
  • cost of production
  • profitability of substitutes
  • nature of product
  • aims and expectations of producers
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14
Q

Why businesses expand supply when market prices go up

A

1 profit - higher profit
2 new entrants
3 economies of scale

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14
Q

What is equilibrium price

A

The price at which the quantity of a good or service is equal to the quantity supplied by producers. There is no excess demand or excess supply

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15
Q

What is equilibrium quantity

A

The amount of goods and services that are bought and sold at the equilibrium price. Represents the quantity where the intentions of buyers and sellers match

16
Q

When does excess supply happen

A

Occurs when the quantity of goods or services supplied exceeds the quantity demanded at a given price

17
Q

When does excess demand happen

A

when the quantity of a good or service demanded exceeds to quantity supplied

18
Q

What is the price floor

A

The minimum price set by the government that must be paid for a good or service in order to prevent prices falling below a certain level

19
Q

What are the purposes of the price floor

A
  • protects consumers income
  • ensures fair wages for workers
  • prevents market prices from being too low
20
Q

What is the price ceiling

A

The maximum price set by the government that can be set for a good or service in order to prevent prices from rising to a certain level

21
Q

Purposes of the price ceiling

A
  • protects consumers from excessive pricing
  • ensures affordability of essential goods
  • aims to control inflation
22
Q

What does elasticity measure

A

Measures how much one variable responds to a change in another variable

23
Q

Price elasticity of demand calc

A

% change in quantity demanded/ % change in price

24
Q

What does price elastic mean

A

less then one, sensitive to price changes

25
Q

What does price inelastic demand mean

A

More then one, not very sensitive to price changes

26
Q

Income elasticity of demand calc

A

% change in quantity demand/ % change in income

27
Q

What does income elastic means

A

More then 1, as income rises demand increases

28
Q

What does income inelastic means

A

More then 0 less then 1, demand increases with income but at a slower rate

29
Q

What does a decrease in income elasticity mean

A

less then 0, demand decreases as income rises

30
Q

Factors affecting elasticity of demand

A
  • availability of substitutes
  • necessity or luxury
  • time period
  • proportion of income spent on the good
31
Q

Elasticity of supply calc

A

% change in quantity supplied/ % change in price

32
Q

Factors affecting supply elasticity

A
  • time to produce
  • flexibility of producers
  • availability of inputs
33
Q

Elasticity and pricing strategy

A

Helps businesses decide on price changes e.g would it be suitable and sustainable

34
Q

Elasticity and taxation

A

Governments use this to predict effect of taxes

35
Q

Elasticity and revenue implication

A

Determines whether raising prices will increase or decrease total revenue

36
Q

Elasticity and policy decisions

A

Informs how interventions e.g subsidies or taxes will impact supply and demand

The economic business environment (5 decks)

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