1.2.1 - 1.2.3 Flashcards
What are the 4 Economics Agents?
Consumers
Producer
Government
Workers
How do Rational Consumers act?
Consumers aim to maximise their utility.
How do Rational producers act?
Producers sell their goods and services in order to maximise their profits.
How do Workers act rationally?
They balance their welfare with the benefits provided from their job and pay.
How do Governments act rationally?
They aim to maximise the welfare of society.
What is demand?
The amount of people who are willing to purchase a good or service, within a given period of time and given price.
What are the causes of a shift in Demand?
Changes in real income
Changes in tastes
Advertising/Branding
Changes in substitute prices
Changes in complementary goods
Changes in population size
What is Marginal Utility?
The additional satisfaction gained from every extra unit consumed.
How does Diminishing Marginal Utility link with the Demand Curve?
The first unit consumed will have the highest utility, every other one after will have less satisfaction.
What does Diminishing Marginal Utility mean?
The additional satisfaction gained from every extra unit consumed is lower than the previous unit consumed.
What is PED?
The responsiveness to demand following a change in price.
What is the formula of PED?
Percentage change in Q demanded/Percentage change in Price
What is the Law of Demand?
When there is an increase in price the result will be a decrease in demand.
What does a Perfectly Inelastic PED mean?
The is no change in Demand when there is a change in price.
What is the Value for Perfectly Inelastic PED?
0
What is an Inelastic PED?
The change in Quantity Demanded is less than change in price.
What is the value off an Inelastic PED?
0-1
Why will PED always become a negative calculation?
The law of demand.
What is Unitary Elastic PED?
The change in Quantity demanded is the exact same as Change in Price.
What value is Unitary Elastic PED?
-1
What is a Relatively Elastic PED?
The change in Quantity Demanded is greater than change in Price.
What is a Perfectly Elastic PED?
The change in Quantity Demanded will fall to 0.
What are 4 factors that effect PED?
Availability of Substitutes.
Addictiveness of product.
Price of product compared to income.
Time Period.
Why might Time Period affect PED?
It gives consumers more time to look for substitutes.
What is YED?
The responsiveness of quantity demanded for a product following a change in Income.
What is the formula of YED?
% change in QD / % change in income
What are the three types of goods related to YED?
Inferior
Normal Necessities
Normal Luxury
What is a Normal Necessity and what value does it have?
0-1
Demand increases when income increases, however the quantity demanded is not as big as income change.
What value does a Normal Luxury good have and what is it?
Demand increases when income rises, it is YED>1.
What is a Inferior good and what is the value of it?
YED<0
Demand decreases when Income Increases.
What are factors that influence YED?
Any factors within an economy which change wages of workers.
What is Cross Price Elasticity of Demand?
The responsiveness of quantity demanded for a specific good, following a change in price of a different good.
What is the formula for XED?
% change in QD of good A / % change in Price of Good B
If the XED is Positive what does this mean?
Goods are substitute goods.
What saying would you use to remember XED?
Party, Season, Near, Christmas
Positive, substitute, Negative, Complements
What does it mean if XED is negative?
Goods are complements.
What does it mean if XED>1?
Strongly Related.
What does it mean if XED<1?
Weakly related.
What does the Reveune Rule mean?
In order to maximise profits, firms should increase the price of Inelastic goods and Decrease price of goods that are Elastic.
