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Fundamentals Of Economics > Week 6A > Flashcards

Week 6A Flashcards

1
Q

What is a free market economy ?

A

Resources allocated by supply and demand

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2
Q

What is a mixed economy ?

A

Part free market and part planned

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3
Q

What is a command(planned) economy?

A

Resources allocated by government

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4
Q

Diff between planned and free markets

A

Planned- social objectives(government decides what is best for society)
Free- firm aims to maximise profits

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5
Q

One type of economics

A
  • positive vs normative
  • micro vs macro economics
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6
Q

Economic agents

A

Public sector
Private sector
Business that produce goods and services using factors of production

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7
Q

Effective demand

A

What consumers are willing and able to purchase at each price, all other things unchanged

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8
Q

Demand curve

A

=downwards sloping

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9
Q

Change in price

A

Movement along the demand curve= change in quantity demanded= an extension and contraction of demand

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10
Q

Normal products

A

Demand increases as income increases

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11
Q

Inferior products

A

Demand falls as income increases

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12
Q

Upward sloping demand curve

A

Giffen or veblen good ( quantity demand increases as price increases)

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13
Q

Example of veblen good

A

Toilet paper in Covid

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14
Q

Elasticity of demand

A

Refers to sensitivity of demand to changes in variables

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15
Q

When is a price is elastic

A

Value (ignoring signs) is greater than 1
Revenue increases (price falls)

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16
Q

When is a price inelastic

A

Value (ignoring signs) is less then 1
Revenue decreases( price fall)

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17
Q

When is a price unitary elastic

A

When value =1
Revenue stays the same (price fall)

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18
Q

Elasticity of demand calculation

A

%🔺Q/ %🔺P

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19
Q

Income elasticity of demand calculation

A

%🔺Q/ %🔺I
Positive sign= normal good
Negative sign= inferior or giffen good

20
Q

Cross elasticity of demand calculation

A

%🔺Q(of product A)/ %🔺P(of product B)
Positive sign= substitutes
Negative sign= compliments(AirPods to phone)

21
Q

Supply curve shows ?

A

The amount the producers are willing and able to produce

22
Q

What is marginal utility

A

Extra satisfaction from additional goods

23
Q

When does market occur ?

A

When buyers and sellers interact to exchange goods and services

24
Q

When does equilibrium occur ?

A

Quantity supplied = quantity demanded at the given price and there is no incentive for the position to change

25
Q

When is equilibrium reached in free markets

A

By changes in price

26
Q

An outward shift in demand ?

A

Increases equilibrium price and quantity

27
Q

An inward shift in demand?

A

Decreases equilibrium price and quantity

28
Q

An outward and inward shift in supply ?

A

Decreases equilibrium price and increases quantity

Inward shift exactly opposite

29
Q

What is marginal revenue ?

A

Change in total revenue when an additional unit is sold

30
Q

Price cut on total revenue

A

Elastic~ increases revenue
Unit elastic~ revenue doesn’t change
In elastic~ revenue falls

31
Q

Abnormal profits

A

When revenue is greater than total costs

32
Q

Normal profits

A

Occur when revenue = total costs

33
Q

Shutdown point

A

Revenue = variable costs
Price= average variable costs
When a company no longer benefits from running their operations

34
Q

Break even point

A

Revenue = total cost

35
Q

Why pursue profits

A

Source of internal finance
Common benchmark of success
Higher profits may increase share price

36
Q

Sales revenue maximisation

A

Produce where marginal revenue = 0

37
Q

Market penetration

A

Existing products in existing markets

38
Q

Market development

A

Existing products in new markets

39
Q

New product development

A

New products to existing markets

40
Q

Diversification

A

New products in new markets

41
Q

What might shift the demand curve for a product left or right

A

Could be a fall in income if normal good
Increase in price complements
Fall in price of substitutes

42
Q

The difference between a change in quantity demanded and a change in demand

A

A change in qty demanded
-is a result of a change of price

A change in demand
- is a result of non price determinants

43
Q

Elasticity formula

A

Ed=%🔺(quantity sold)/ %🔺price

44
Q

How does price elasticity of demand vary along a demand curve

A

When price is high, demand is price elastic;the change in quantity demanded is greater in % than the price change

Opposite for inelastic

45
Q

What might shift a supply curve for a product inwards

A

Increase in costs, less prouducers, tax

Fundamentals Of Economics (3 decks)

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