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38 Cards in this Set
- Front
- Back
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What is the elasticity of demand formula?
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% change of quantity / % change of supply
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What does it mean if the formula answer for elasticity of demand is less then 1?
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It is inelastic
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Define inelastic
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products that are insensitive to a change in money
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Define elastic
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products are more sensitive to a change of price
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What happens if the answer to the formula or elasticity of demand is more then 1?
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its elastic
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Define perfectly inelastic
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an increase of price has no change on quantity
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What happens if the answer to the formula or elasticity of demand is 0?
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It is perfectly inelastic
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Define perfectly elastic?
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an increase of quantity has no change on price
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Define unit elastic
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the quantity and price change at the same price
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What happens if the answer to the formula or elasticity of demand is 1?
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it's unit elastic
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what is the formula for total revenue
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price*quantity
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what is a fixed cost?
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costs don't change with the amount produced
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what is a variable cost?
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costs that do change with the amount produced
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what is the formula for total cost?
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fixed *variable costs
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what is a marginal cost?
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the additional cost of one additional output
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what is the formula for marginal cost
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change in total cost/change in output
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how to work out the average variable cost
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variable cost/quantity
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how to work out the average fixed cost
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fixed cost/quantity
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how to work out the average total cost
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total cost/quantity
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what happens when you add avc and afc?
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avc + afc = atc
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define perfect competition
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producers that have perfect substitutes
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What is a price taker? what happens if they raise their prices?
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price taker - each firm must sell their product at the price set by the market raised prices = loss of customer as there is a perfect substitute for their product that people will buy as its cheaper |
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what is MR DARP?
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marginal revenue = demand = average revenue = price
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what does it mean when the marginal revenue line and a marginal cost line meet on a graph?
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is the max profit a company can get
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Define monopoly. What does this mean?
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a market that has one seller; they can determine how high or low they want to sell
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what is the profit maximising quantity?
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where the MR meets MC
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What is the law of demand? |
Inverse relationship between the price and quantity demanded (as price decreases, demand increases) |
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Define surplus |
The quantity supplied is greater then the quantity demanded |
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Define shortage |
Quantity demanded if greater then quantity supplied |
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Why is the demand curve downward slopping? |
Substitution effect - changes in price motive people to buy cheaper subs Income effect - the amount you can buy with £1 has increased so more will be brought The law of diminishing satisfaction - the more of a product you consume, the less satisfaction you get |
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What are the 5 shifters of demand? |
1. Tasters/preferences 2. Number of consumers 3. Price of related goods (substitutes/compliments) 4. Income 5. Expectations |
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What happens when there is a change of quantity demanded? |
It moves along the line |
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What happens when there is a chance in demand? |
The 5 shifters - it moves the the right/left |
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Define the law of supply |
There is a direct relationship between price and quantity supplied (price goes up, quantity goes up) |
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What are the 5 shifters of supply? |
1. Price of resources 2, number of producers 3. Technology 4. Taxes and substitutes 5. Expectations |
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What happens f there is a change in quantity supplied? |
It moves along the line |
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What happens if there is a change in supply |
5 shifts - it moves to the right or left |
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Define equilibrium |
The point where the quantity demanded is equal to the quantity supplied |
