Econ Unit 2

Monopoly

. There is only one firm which is supplying that type of good. The firm does not really allow other competitors in the market. There no alternatives and the firm charges whatever prices they want as consumers have no other alternatives.

Incidence of tax

Burden or impact of tax on a consumer or a firm/producer

Perfectly price elastic demand/supply

Prices may rise or fall but the quantity supplied/demanded is fixed.

Barriers to entry

The factors that make it difficult for a firm to enter the market.

Equilibrium/ market clearing

The market clearing / equilibrium is the quantity at which demand and supply curves intersect.

Joint demand

2 or more goods that are interdependent. e.g Printer and paper

Market demand/supply curve

A Demand curve shows how demand of a good varies with changes in its price. A supply curve shows the price and quantity of a good that a seller is willing and able to supply.

Compliment

A complement is a good which is in joint demand with another good. Where if the demand for Good A increases so will the demand for Good B.

Tax

A compulsory contribution to state revenue collected by the government on workers incomes and business profits or added to the cost of some goods, services and transactions

Contraction of demand/supply

A contraction of demand is defined as a movement up the same demand curve. In Supply this happens when prices fall, and in demand this occurs when prices rise.

Individual demand/supply curve

A curve to show the relationship and price equilibrium of supply and demand of a market for a good or service

Derived demand

A demand for a good or service that is the consequence of the demand of something else. An example would be: If there is demand for steamed fish at a restaurant, there would be derived demand from the fishermen that catch the fish.

Normal good

A good for which demand increases when incomes increase. The demand falls when incomes decrease but the price remains constant.

Inferior good

A good that decreases in demand when consumers' income rises. Consumer's spend more on more costly substitutes. Inferior good→ Bata shoes/Nokia

Demand/ Supply Schedule

A market demand schedule is a table that lists the quantity of a good that all consumers in a market will buy but at a every different price. A supply schedule is tabular depiction of the relationship between price and quantity supplied represented graphically as a supply curve.

Market

A market is any structure that allows buyers and sellers to exchange any types of goods, services or information at particular prices.

Positive/direct relationship

A relationship between two variables where when one variable changes the same change is applied to the other. (When price goes up so does Supply)

Shortage

A shortage is when the quantity demanded is greater than the quantity supplied. It is the opposite of a surplus.

Subsidy

A subsidy is a form of financial aid or support provided to an economic sector to promote economic growth and to provide merit goods. When a subsidy is provided the producers COP goes down which increases chances of making a profit, therefore also increasing supply. The increase of supply leads to a fall in prices and an extension in demand.

Substitute

A substitute is another alternative for the same type of good. For example, white coloured T-shirts in H&M and Mango are both substitutes.

Extension of demand/supply

An extension of demand refers to the movement of the curve to the right (down the curve). An extension of supply refers to the movement of the curve to the right (up the curve).

Increase of demand/supply

An increase in demand or supply suggests that a non price factor has caused the quantity demanded/supplied to rise. It is shown on a demand or supply curve by a shift to the right.

Inverse Relationship

An inverse relationship is a relationship between two variables. When one increases, the other decreases. For example, when the price falls, the quantity demanded rises, and when the price rises, the quantity demanded falls.

Composite demand

Demand for a good that has more than one purpose. For example, milk has more than 1 purpose.

Competitive demand

Goods and services that have substitutes. As they serve the same purposes, they are in competitive demand. E.g. Coke and Pepsi.

Tax yield/ revenue

Income received by the government as a result of charging taxes on g/s or incomes

Joint supply

Joint supply refers to the simultaneous output of multiple goods and services usually when their factors of production are the same.

Price Elasticity of Supply

PES stands for Price Elasticity of Supply. It measures the responsiveness of quantity supplied to a change in price. We use a formula (% change in quantity supplied / % change in price) to measure the PES. The factors that affect PES are Time, Spare capacity, Storage possibilities, and Factor mobility.

Perfect competition

Perfect competition is when there are multiple firms selling similar goods, competing for the same consumers. Some identifying factors of perfect competition are that there are very little barriers to entry and that consumers have perfect knowledge.

Price Elasticity of demand

Price elasticity of demand is a way to measure the responsiveness of quantity supplied when there is a change in price.

Producer sovereignity

Producer sovereignty is when firms have the power to control or influence the consumer and what they buy. For example in a monopoly, there is only one firm that's producing the goods so the consumers have to pay a very high price, and they do not have much information about the good, and often the quality of the good is also poor.

Supply

Supply is the amount of something that the producers are willing and able to produce in a certain time frame.

Surplus

Surplus is the amount of an asset or resource that exceeds the portion that is utilized. A surplus is used to describe many excess assets including income profits, capital and goods.

Direct Tax

Tax which is levied on the income or profits of the person who pays it, rather than on goods or services.

Sales Revenue

The amount of money a firm makes when it clears it's supply. (Quantity * Price - Cost)

Law of demand

The law of demand states that as price rises, demand falls and as prices fall, demand rises; as long as other factors remain unchanged (ceteris paribus).

Law of supply

The law of supply states that price and quantity supplied share a direct relationship. This is because, when prices rise, producers find more incentive to make profit and produce more.

Unit Elastic Demand

The percentage change in quantity is equal to that of price, so a change in price will not affect total revenue. The elasticity is 1. Hence the good will be price inelastic. For example-cigarettes, smoking addicts will just continue to buy them.

Decrease of demand/supply

This causes the demand and supply curve to shift left. This change has happened due to a non-price factor.

Minimum Price Controls

This is a form of government intervention usually to help suppliers when it believes that prices are unfair or low. It sets a price below the equilibrium price not allowing price to fall beneath the 'floor'. It gives rise to surplus.

Random shocks

Unpredictable events that affect demand or supply. (eg.: demand for cows after the mad cow disease)

Utility

Utility is a term used to describe how "useful" or satisfying a product is.

Disequllibrium

When Demand and Supply fail to meet an equilibrium. The 2 types of a disequilibrium are a surplus and a shortage.

Indirect Tax

When a tax is levied on goods and services rather than on income and profits.

Consumer sovereignity

When in an economy the wants and needs of a consumer decides the output of the producer.

Perfectly price inelastic demand/supply

When the price elasticity is perfectly price inelastic, changes in the price do not affect the quantity demand for the good; raising the prices will always lead to an increase in revenue.

Effective demand

Willingness and ability to purchase at a particular price at a certain time.