Studied by 2 people
What is law of supply?
Is that as the price of a product rises, the amount being supplied by the firm increases.
What is a market?
A way of bringing together buyers and sellers to buy and sell goods/services. A price is established and the market can be physical or electronics
What are the 4 types of markets?
Product market, Factor market, Labour market, Financial market
What is resource allocation?
How scarce resources (factors of production) are distributed among producers and how scarce goods and services are apportioned among consumers
What is economic welfare?
The economic well-being of an individual or group within society or an economy.
What is demand?
The willingness and ability to buy a specific good/service at a given price in a given period of time
What is notional demand?
What consumers would demand if they had the money to buy whatever they want
What is effective demand?
Notional demand that is backed by ability to pay (consumers actually have the money to purchase the good or service).
What is the law of demand?
There is an inverse relationship between price and quantity demanded
If price rises and demand falls and there is a movement along the demand curve to the left it's called ...
Contraction of demand
If prices falls and demand rises and there is a movement along the demand curve to the right it's called ...
Expansion of demand
What is the definition of conditions of demand?
A determinant of demand, other than the goods own price that fixes the position of the demand curve
What are the conditions of demand?
Consumer confidence
Availability and cost of credit
Price of other goods
Tastes and fashions
Advertising and marketing
Incomes
Number of potential customers
What are nominal incomes?
The actual cash received as income and not just adjusted for inflation
What is per capita income?
The average income per person
What is direct tax?
Taxes directly levied on an individual or firm. They include income tax and corporation tax
What is supply?
The quantity of a particular good or service that a firm or producer will offer for sale at a given price.
What is the total cost?
The sum of all costs, both fixed and variable
What is average unit cost?
The costs of producing one unit (total cost/total output)
What are the conditions of supply?
Subsidies
Height of barriers to entry
Indirect taxes
Productivity and wage costs
Material costs
Availability and mobility of the FoP
Technology
Expectations
What are subsidies?
Payment from government provides them for an incentive for them to supply the good/service
What does equilibrium mean?
When the quantity supplied is equal to the quantity demanded
What does supply surplus mean?
Where firms wish to sell more than consumers wish to buy (demand), with the price above the equilibrium price. AKA excess supply
What is a shortage?
When consumers wish to buy (demand) more than firms wish to sell (supply), with the price below the equilibrium price. AKA excess demand.
What is the equilibrium price?
Equilibrium price is the point at which quantities demanded and quantities supplied are equal
Define allocation of resources
How scarce resources (Fop) are distributed among producers, and how scarce goods and services are apportioned among consumers.
What is allocative efficiency
When the price of a good is equal to the price that consumers are happy to pay for it. This will happen when all resources are allocated efficiently.
What is productive efficiency?
This occurs when products are produced at a level of output where the average cost is lowest.
What is dynamic efficiency?
When firms improve efficiency in the long term by carrying out R&D into new or improved products, or investing in new technology and training to improve the production process.
What is revenue?
The total value of sales within a time period. It can be calculated using the formula:
Revenue = price per unit x quantity sold
What's a free market economy?
Whereby market forces of supply and demand are allowed to guide the allocation of resources. There is no government intervention.
What's a command economy?
Whereby decisions about the allocation of resources are decided by the government.
What's a mixed economy?
Whereby resources are allocated partly through price signals (S&D) and partly from government intervention.
What's PED and what's it's formula?
How much demand changes if the price of that good changes.
% change in quantity demanded/% change in price
How to calculate percentage change?
% change =(difference/original) x 100
How to calculate price elasticity (3 steps)
1. Calculate the % change in demand
2. Calculate the % change in price
3. Calculate the price elasticity of demand
What's price elastic demand?
Quantity demanded is very responsive to a change in price.
PED value is greater than 1
What's price inelastic demand?
Quantity demanded is not very responsive to a change in price.
PED value is between 0 and < 1
What factors affect PED?
Substitutes
Addictiveness
Necessity
Amount of income
Time
Brand loyalty
What's PES and what's its formula?
How much supply changes if the price of that good changes.
% change in quantity supplied/% change in price
What's price elastic supply?
When quantity supplied is very responsive to a change in price.
PES value is greater than 1
What's price inelastic supply?
Quantity demanded is not very responsive to a change in price.
PES value is between 0 and < 1
What factors effect price elasticity of supply?
Competition
Length of time
Availability of FoP
Unused capacity
Switch of production
Note 
Flashcard (93)