Markets

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43 Terms

1
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What is law of supply?

Is that as the price of a product rises, the amount being supplied by the firm increases.

2
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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

3
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What are the 4 types of markets?

Product market, Factor market, Labour market, Financial market

4
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What is resource allocation?

How scarce resources (factors of production) are distributed among producers and how scarce goods and services are apportioned among consumers

5
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What is economic welfare?

The economic well-being of an individual or group within society or an economy.

6
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What is demand?

The willingness and ability to buy a specific good/service at a given price in a given period of time

7
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What is notional demand?

What consumers would demand if they had the money to buy whatever they want

8
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What is effective demand?

Notional demand that is backed by ability to pay (consumers actually have the money to purchase the good or service).

9
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What is the law of demand?

There is an inverse relationship between price and quantity demanded

10
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If price rises and demand falls and there is a movement along the demand curve to the left it's called ...

Contraction of demand

11
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If prices falls and demand rises and there is a movement along the demand curve to the right it's called ...

Expansion of demand

12
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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

13
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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

14
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What are nominal incomes?

The actual cash received as income and not just adjusted for inflation

15
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What is per capita income?

The average income per person

16
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What is direct tax?

Taxes directly levied on an individual or firm. They include income tax and corporation tax

17
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What is supply?

The quantity of a particular good or service that a firm or producer will offer for sale at a given price.

18
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What is the total cost?

The sum of all costs, both fixed and variable

19
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What is average unit cost?

The costs of producing one unit (total cost/total output)

20
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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

21
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What are subsidies?

Payment from government provides them for an incentive for them to supply the good/service

22
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What does equilibrium mean?

When the quantity supplied is equal to the quantity demanded

23
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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

24
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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.

25
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What is the equilibrium price?

Equilibrium price is the point at which quantities demanded and quantities supplied are equal

26
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Define allocation of resources

How scarce resources (Fop) are distributed among producers, and how scarce goods and services are apportioned among consumers.

27
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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.

28
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What is productive efficiency?

This occurs when products are produced at a level of output where the average cost is lowest.

29
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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.

30
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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

31
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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.

32
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What's a command economy?

Whereby decisions about the allocation of resources are decided by the government.

33
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What's a mixed economy?

Whereby resources are allocated partly through price signals (S&D) and partly from government intervention.

34
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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

35
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How to calculate percentage change?

% change =(difference/original) x 100

36
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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

37
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What's price elastic demand?

Quantity demanded is very responsive to a change in price.
PED value is greater than 1

38
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What's price inelastic demand?

Quantity demanded is not very responsive to a change in price.
PED value is between 0 and < 1

39
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What factors affect PED?

Substitutes
Addictiveness
Necessity
Amount of income
Time
Brand loyalty

40
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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

41
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What's price elastic supply?

When quantity supplied is very responsive to a change in price.
PES value is greater than 1

42
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What's price inelastic supply?

Quantity demanded is not very responsive to a change in price.
PES value is between 0 and < 1

43
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What factors effect price elasticity of supply?

Competition
Length of time
Availability of FoP
Unused capacity
Switch of production