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econ topics 1 & 2 > 1.2 how markets work > Flashcards

1.2 how markets work Flashcards

1
Q

rational decision making

A

underlying assumption that people will aim to maximise utility & firms will aim to maximise profit

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2
Q

PED equation

A

% change in quantity demanded / % change in price

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3
Q

PED < 1

A

price inelastic

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4
Q

PED = 1

A

UNIT ELASTIC

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5
Q

PED = 0

A

PERFECTLY INELASTIC

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6
Q

PED INFINITY

A

PERFECTLY ELASTIC

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7
Q

what decides PED

A 
availability of substitutes
% income spent on good
addictive & habit forming goods
the time period
branding & consumer loyalty
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8
Q

YED equation

A

% change demand / % change in real income

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9
Q

what is YED dependant upon

A

inferior good
normal good
luxury

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10
Q

PES equation

A

% change in supply of a good / % change in price of a good

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11
Q

XED equation

A

% change in demand for good b / % change in demand for good a

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12
Q

cross elasticity of demand (XED) is dependant upon

A

substitutes
complementary goods
unrelated goods

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13
Q

invisible hand - its nature

A

nature of the market to elimate surpluses and shortages

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14
Q

price mechanism devices

A

rationing
signalling
incentives

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15
Q

how does direct tax work

A

levied on an individual or organisatoin

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16
Q

how does indirect tax work

A

levied on the purchase of a good or service

17
Q

how does specific tax work

A

fixed amount per unit

18
Q

how does ad valorem tax work

A

% of price of good

19
Q

define indirec tax

A

An indirect tax is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of market price of the good or service purchased.

20
Q

advantages of using indirect taxes

A

convinience
ease of collection
collection from poor
equitable contributions

21
Q

disadvantages of using indirect tax

A

not industry friendly
can be regressive in nature
sometimes cumulative

econ topics 1 & 2 (11 decks)

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