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ECON > 1.2 > Flashcards

1.2 Flashcards

1
Q

Rational Decision making model

A

1 - Identify the problem
2 - Identify the decision criteria
3 - Weigh the criteria
4 - Generate + Evaluate alternatives
5 - Choose best alternative
6 - Carry out + Evaluate decision

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2
Q

Limitations of the rational decision making model

A

Not the best or most realistic way firms will carry out decisions

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3
Q

Bounded rationality model

A

1 - first alternative selected
2 - decision maker realises people perceive the world as simple
3 - decision maker knows they cant find every alternative
4 - decision could be made by heuristics

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4
Q

Demand

A

Quantity of a good or service that consumers are willing and able to buy at a given price and time period

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5
Q

Factors dictating demand

A

PIRATES
Population
Income
Related goods
Advertisement
Taste
Expectations
Seasons

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6
Q

Dervied Demand

A

When the demand of one good is related to the demand of a related good

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7
Q

Composite Demand

A

When the good demanded has more than one use

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8
Q

Joint Demand

A

When goods are bought together

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9
Q

Diminishing marginal utility

A

as an extra unit of the good is consumed the marginal utility falls so consumers are willing to pay less

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10
Q

Price elasticity of Demand

A

responsiveness of a change in demand to a change in price

% of the change in QD/ % of the change in Price

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11
Q

PED Values

A

Price elastic good = very responsive = PED > 1
Price inelastic good = not very responsive = PED < 1
Perfectly inelastic good = doesn’t respond = PED = 0
Perfectly Elastic good = Demand goes to 0 = PED = Infinity

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12
Q

Factors influencing PED

A

Necessity
Substitute
Addictiveness
Proportion of income spent
Durability
Peak and of peak demand

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13
Q

Tax burdens - elastic

A

Producers take most of tax burden as price increase demand falls

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14
Q

Tax burdens - inelastic

A

Producers put the tax on the consumer as price increase demand stays the same

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15
Q

Income Elasticity of Demand

A

responsiveness of a change of demand to a change in income
% change in QD / % change Income

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16
Q

YED values

A

Inferior goods - Demand falls when income increases - YED < 0
Normal goods - Demand increases when income increases - YED > 0
Luxury goods - Demand increases greatly when income increases - YED > 1

17
Q

Cross elasticity of demand

A

responsiveness of a change in demand of one good X to a change in price of another good Y

% change of QD X / % change of price Y

XED shows firms how many competitors they have

18
Q

XED Values

A

Complements have negative XED - if good a increases in price qd for both goods decrease

19
Q

Close compliments vs Weak Compliments

A

Close compliments - small fall in price of good X leads to a large increase of QD of Y
Weak compliments - large fall in price of good X leads to a small increase of QD of Y

20
Q

Supply

A

quantity of G+S that a producer is willing and able to supply at a given price and time period

21
Q

Factors dictating the supply curve

A

Productivity
Indirect Taxes
Number of firms
Technology
Subsidies
Weather
Cost of production

22
Q

Joint supply

A

increasing supply of one good changes supply of another good

23
Q

Price elasticity of supply

A

%change in QS / %change in price

24
Q

PES Values

A

Supply elastic - firms can increases supply at little cost = PES > 1
Supply inelastic - firms can increase supply at great cost and take long = PES < 1
Perfectly inelastic supply - supply fixed change in demand cant be met = PES = 0
Perfectly elastic supply - supply unlimited can meet any demand = PES = infinity

25
Q

Factors influencing PES

A

Time scale - Short run supply is more price inelastic as producers cant increase supply quickly, long run supply is more price elastic as producers can eventually increase supply

Spare capacity - if there’s spare resources supply can be increased quickly

Level of stocks - if goods can be stored firms can increase market supply easily

26
Q

Incentive

A

Encourages a change of behaviour of a consumer or producer

27
Q

Signalling

A

price acts as a signal for consumers and firms entering a market

28
Q

Consumer Surplus

A

difference between the price the consumer wants to pay vs the price they actually pay based on what the consumer values the private benefit is

29
Q

Producer Surplus

A

difference between the price the producer is willing to charge and what they actually charge

30
Q

Indirect taxes

A

imposed by government and increase cost of production for producers

ECON (10 decks)

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