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EconsExamPrep1
Markets and Prices
| Question | Answer |
|---|---|
| Micro Economics | study of parts of the economy or individual sectors. (households and firms) |
| Macro Economics | study of economics as a whole. of broad aggregates. |
| Economic Problem | there are unlimited wants and limited resources to satisfy them |
| Difference Between economic and free goods | free goods are goods without a price (air and the environment) Economic goods have a price. |
| Why is there no solution to the economic problem? | because we have unlimited wants. there is always one to take its place. |
| Land Resources | Air Water Minerals.Paid with Rent.Supplied by natural environment. |
| Labour | workmen building.Paid in Wages or Salaries.Physical and Mental effort applied to production of goods and services. |
| Capital | pen used by journalist.Paid in Interest.Man made assistance in production of goods and services. |
| Enterprise | Decided to order 20 milks.Paid in Profit.Coordination of production by entrepreneur. |
| Opportunity Cost | real or economic cost of a decision. the cost of the alternative foregone. |
| What is the role of the Economy? | allocate resources |
| what are functions? | What to produce. How to produce. For Whom to produce. How much to produce. |
| What is an economic model? | a simplified representation of relationship between certain economic variables. |
| What is PPF? | production possibility frontier. |
| What does PPF? | displays economic problem and opportunity cost |
| What does it assume? | resources are fixed. technology is fixed. economy produces two goods. |
| Relative scarcity | recources are limited relative to society's unlimited wants. |
| consumer goods | satisfy wants immediately |
| Define Market | buyers and sellers exchange goods, services or resources. four elements, buyers, sellers, commodity and voluntary exchange. |
| Factor Market | Households have resources which they sell to firms. |
| Product Market | Consumers are the demand side and firms are the supply side of the market. |
| Competitive Market | Interaction between buyers and seller sets price |
| Non-Competitive Market | A monopoly determines price. |
| Market Economy | Resources are owned privately and all decisions are made by owners in self interest. |
| Planned Economy | Resources are owned collectively and all decisions are made by a planning authority, eg. government |
| Mixed Economy | Over 50 % of output is owned by private markets whilst some degree of government ownership. |
| Price Mechanism | way of determining price, equilibrium. |
| Demand | the buying intentions of sellers that are willing and able to purchase. |
| Law of Demand | As price rises demand falls |
| Income Effect | As Y falls you demand less of an item |
| Substitution Effect | as price rises for good A, demand falls for good A and rises for good B. |
| Price Factors | Contraction: price rises, quantity demanded down. Expansion: price falls, quantity demanded rises. |
| Non-Price Factors | -Y of consumers- Price of relative goods- Preferences- Expectations of consumers- Demographics |
| What moves along the demand curve? | Price factors |
| What moves the entire demand curve? | Non-price factors |
| Normal Goods | As income rises of consumers so does their demand for the good |
| Inferior Good | As income increases the demand for the good decreases. Home brands etc. |
| Supply | amount of goods and services producers are willing and able to sell at a certain price and time. |
| Law of Supply | As price rises quantity supplied will also rise because as price rises demand falls. |
| movements along curve in supply | price factors; contraction and expansion |
| movements of entire supply curve | non price factors |
| supply non price factors | price of inputs. price of other goods. technology. expectations of producers. |
| Market equillibrium | quantity demanded = quantity supplied.Where buying intentions meet sellin intentions. |
| Total revenue | price x quantity. amount of total money made. |
| Price Elasticity of Demand | percentage change in quantity demanded divided by percentage change in price. |
| Elastic Demand | Change in demand is proportionally larger then change in price. substitute goods because can buy cheaper ones. |
| Inelastic Demand | change in demand is proportionally less than change in price. Necessity because need good regardless of price. |
| Unitary Demand | change in demand is proportionally equal than change in price. |
| Factors Affecting Price Elasticity of Demand | Substitutes, necessity, proportion of Y, time |
| How does advertising affect PED? | because it creates product defferentiation making it more price elastic. |
| Income elasticity of Demand | responsiveness to change in income |
| Cross elasticity of demand | determines whether two goods are substitutes (positive number) or compliments(negative number). |
| Price elasticity of Supply | % change in Q supplied/% change in Price |
| Factors of Price Elasticity of Supply | Time and Nature of Industry |
| Sales tax and elastic goods | burden of tax falls on producers so demand doesnt fall too greatly. |
| Sales tax and inelastic goods | fall on consumer and tax revenue is greater and therefore more likely. |
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Chrissy3421
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