Economics, Section A Part 1

HideShow resource information
What is a market?
Where buyers and sellers communicate and exchange goods and services for money.
1 of 25
What are the functions of a market?
Price determination and resource allocation
2 of 25
How are prices determined in a market system?
Interaction of supply and demand
3 of 25
What is a supply/demand schedule?
The amount of a product supplied/demanded at certain prices summarised in a table.
4 of 25
What is a supply/demand curve?
When prices and quantity demanded/supplied are plotted on a graph.
5 of 25
What causes a movement along the curve?
Changes in price.
6 of 25
What causes shifts in the demand curve? Why?
Income, advertising, population, tastes and fashions, price of substitutes and complements (explain)
7 of 25
What causes shifts in the supply curve? Why?
Costs of production, indirect taxes (what are they?), subsidies, tech changes, weather, price of other goods.
8 of 25
What is equilibrium price?
Where supply and demand are equal at a certain price; where the supply and demand curves cross.
9 of 25
How do you calculate total revenue?
price x quantity
10 of 25
If there is excess demand/supply, what happens?
Price below equilibrium= demand>supply=excess demand=shortage ; price above equilibrium=supply>demand=excess supply=surplus
11 of 25
What is price elasticity of demand/supply?
The responsiveness of demand/supply to a change in price.
12 of 25
What does elastic/inelastic mean?
Elastic= more than proportional change in demand/supply. Inelastic= less than proportional change in demand/supply
13 of 25
How do you calculate PED/PES?
(%change in demand/supply) divided by (%change in price)
14 of 25
How does the demand/supply curve look if demand/supply is elastic/inelastic?
Inelastic= steep. Elastic= flat.
15 of 25
What affects PED?
Number of substitutes, degree of necessity, proportion of income.
16 of 25
What affects PES?
Stock levels, production speed, spare capacity.
17 of 25
What is income elasticity of demand?
The responsiveness of demand to changes in income.
18 of 25
How is IED calculated?
(%change in demand) divided by (%change in income)
19 of 25
What does PED/PES/IED mean?
Greater than 1 or less than -1= elastic. Between 1 and -1- inelastic.
20 of 25
What is perfectly elastic demand/supply?
PED/PES= infinity. Curve is vertical. Infinite amount demanded/supplied at current price but none at any other price level.
21 of 25
What is perfectly inelastic demand/supply?
PED/PES= 0. Curve is horizontal. The same amount is demanded/supplied at every price level.
22 of 25
What are the applications of elasticity?
Firms want to know the effect of price changes of total revenue. (explain). Firms with flexible resources can switch to other goods. Govs impose taxes on inelastic goods (consumers cannot avoid buying them)- target necessities or those with few subs.
23 of 25
Regarding IED, what is the difference between a normal and an inferior good?
Normal= IED positive. As income rises, demand will rise. Inferior= IED negative. As income rises, demand will fall.
24 of 25
What does 'PED is unity' mean?
Price changes cause an exactly proportional change in demand. This will leave total revenue unaffected.
25 of 25

Other cards in this set

Card 2

Front

What are the functions of a market?

Back

Price determination and resource allocation

Card 3

Front

How are prices determined in a market system?

Back

Preview of the front of card 3

Card 4

Front

What is a supply/demand schedule?

Back

Preview of the front of card 4

Card 5

Front

What is a supply/demand curve?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Section A Part 1 resources »