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AS Economics > 1.2 Demand > Flashcards

1.2 Demand Flashcards

1
Q

what is the formula for income elasticity of demand?

YED

A

Y= income

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2
Q

what does YED measure?

income elasticity of demand

A

how much quantity demanded will respond to a chnage in income

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3
Q

what is the YED value for inferior goods?

A
  • the YED will be negative
  • as income decreases, demand increases
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4
Q

what is the YED value for normal goods?

A
  • will be positive
  • as when income increases demand also increases
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5
Q

what are income inelastic goods? What is the range for YED?

A
  • normal goods
    *0< YED<1
  • QD will increase by a smaller percentage than I
  • seen as necessities
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6
Q

what are income elastic goods? what is the range for YED?

A
  • normal good
  • YED between 1 and ∞
  • QD will increases by a larger % than Y
  • seen as a luxury
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7
Q

what are inferior goods?

A

as income increases, the demand for the good decreases

YED= -

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8
Q

what are normal goods?

A

as income increases, demand for the good increases

YED=+

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9
Q

what are income elastic goods?

A

QD is very responsive to chnages in income
* luxury goods

YED from 1 to ∞

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10
Q

what are income inelastic goods?

A

when QD is unresponsive to chnages in income
* necessitiy goods

YED between 0 and 1

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11
Q

what is cross elasticty of demand (XED)?

A

how is the demand for good A affected by chnages in price of good B

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12
Q

what is the formula for (XED) cross elasticity of demand?

A
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13
Q

what type of good has an XED of 0?

A

unrelated goods

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14
Q

what type of good has a negative XED?

A
  • complementary goods
  • as price of good A increases, demand for good B will decrease
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15
Q

what are complemenatry goods?

A
  • goods bought and used together
  • if price of good A increases then demand of good B decreases

XED= -

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16
Q

what type of good has a positive XED?

A
  • substitute goods
  • as the price goes up for price A, demand for price B goes up
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17
Q

What are substitute goods?

A
  • goods which can replace another
  • if price of good A increases then demand for good B decreases

XED= +

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18
Q

what is the price mechanism?

A

the interaction of supply and demand to determine prices

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19
Q

what happens to the revenue when the price changes for a elastic demand good?

A
  • price increases= revenue decreases
  • price decreases= revenue increases
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20
Q

what happens to the revenue when the price of an inelastic demand good changes?

A
  • price increases = revenue increases
  • prices decrease= revenue decreases
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21
Q

how is revenue affected by unitary price demand?

A

no relationship/ correlation
* as price increases/decreases revenue stays the same

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22
Q

what is demand?

A

being willing and able to buy something

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23
Q

draw the demand curve

A

inverse realtionship between quanitty demanded and price

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24
Q

What is an extension in demand

A

When prices decrease……there is an expansion in demand

Assuming ceteris Paribus (other factors like competitors ignored)

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25
Q

What is a contraction in demand ?

A

If price increases…l there will be a contraction in demand

26
Q

What will happen to the demand curve if there is an increased amount of advertising?

A

More advertising means more demand for the same price, so there will be a shift outwards in the demand curve

27
Q

Define demand

A

The quantity of a good or service purchased at a given price over a given time period

28
Q

what are the two assumptions in econimics ?

A
  • consumers wish to maximise utility
  • firms wish to maximise profit
29
Q

what factors cause shifts in the demand curve?

conditions of demand

A
  1. seasons (christmas trees)
  2. price of other goods (substitute/complementary )
  3. Changes in taste and preferences: advertising, fashion & trends
  4. Changes in population and age structure (larger population - more migration / more older people)
  5. changes in income (can afford more)

SOAPI

30
Q

what are normal and inferior goods?

A
  • inferior: when icome increases demand decreases
  • basic goods (ms mollies)
    as income increases, demand decreases, shifting demand out ot the right
  • normal : as income increases, demand increases
31
Q

how do substitute goods and complinentary goods affect demand

A

CAUSE MOVEMENTS OF CURVE (EVEN THO PRICE RELATED)
* Substitute goods : inversley proprtional (apple & samsung)
* complimentary goods : propetional (iphone+ apps)

32
Q

what is price elasticity of demand (PED)?

A

measures how much quantity demanded will respond to a chnage in price

33
Q

what is the formula for PED?

A

%Δ Quantity Demanded/ %Δ Price

34
Q

what does it mean when the PED value after the negative sign is larger than 1?

A

this means that the PED of elastic - very responsive to changes in price

35
Q

what does it mean when the value of PED after the negative sign is smaller than 1?

0.7, 0.1

A

the Qd is smaller than p, suggesting that it is inelastic, suggesting that they are unreactive to the chnage in price

36
Q

what happens when the PED is exactly -1?

A

the change in price gives the same chnage in quantity demanded.
unitary elastic demand

37
Q

define elastic demand and inelastic demand

A
  • elastic: demand is very responsive to changes in price
  • inelastic demand: when demand is unresponsive to chnages in price
    *
38
Q

what does an elastic demand curve look like?

A

very horizontal

39
Q

what does an inelastic demand curve look like?

A

very vertical

40
Q

what is perfectly inelastic?

A

when the PED is excatly 0

vertical I for inelastic

41
Q

what are some examples of perfectly inelastic goods?

A
  • drugs for drug addicts
  • life saving medicine
42
Q

what is perfect elasticity?

A

if prices chnaged at all literally no one would buy. Consumers are extremly responsive.
PED at negative ∞

horizontal

43
Q

what does unitary demand curve look like?

A
44
Q

which factors affect Price Elasticity of Demand?

A
  • necessity/luxury good
  • addiction/habit
  • availability of substitutes
  • brand loyalty
  • proprtion of income
  • time period

NASBIT

45
Q

out of necessities and luxuries which are inelastic and elastic?

A

necessities= inelastic
luxuries= elastic

46
Q

what PED are addiction goods and habit goods (games, junk foods)?

A

inelastic

47
Q

how doe availbility of substitutes affect?

A

the more substitutes, the more elastic the price will be

48
Q

how does brand loyalty/brand image affect elasticity

A
  • more brand loyalty= more price inelastic (ferrari)
  • less brand loaylty/imaginne= more price elastic (NIssan)
49
Q

how dos proportion of income affect elasticty?

A
  • the larger the proprtion in your income, the more cautions, so more price elastic
  • the smaller the proportion in income the more price inelastic
50
Q

how does time affect price elasticity?

A
  • the less time given (short run), the more price inelastic
  • the more time given (long run) , the more price elastic, time to consinder substitutes
51
Q

What is joint demand ?

A

Describes the relationship between complementary goods. (As demand for x increases demand for y decreases)

52
Q

What is competing demand ?

A

Describes the relationship between between substitute goods

53
Q

What is composite demand?

A

Demand for a good which has two uses

54
Q

What is derived demand ?

A

Demand for a good which is used in the production of other goods.
eg: milk

55
Q

what is effective demand?

A

when some can buy is and also affford it

useful demand

56
Q

describe the marginal benefit curve

A

marginal benefit curve= demand curve
* the price shows the marginal benefit
* maximum price willing to pay for a qyantity of a good (marginal benefit )

57
Q

what is the law of dimishing marginal utility?

A

as the consumption of a good increases, the marginal utility from an additional unit decreases

downwards sloping demand curve

58
Q

what is marginal utility?

A

the additional benefit recieved from consuming an extra unit of a good

59
Q

define demand

A

the quantity of a goood or services purchased at a given price over a given time period

60
Q

excess demand

A

when the price is set too low so demand is greater than supply

AS Economics (24 decks)

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