2. Microeconomics 2 Flashcards
Competitive demand
2 substitute goods
Complements
2 goods bought and consumed together
increase in the price of one good decreases demand for the other
(Negative XED)
Composite demand
Good is demanded for 2 or more distinct uses
Consumer surplus
Difference between market price and maximum a consumer would have been willing to pay
Contraction of demand
Movement along demand curve
Increase in price Leads to a reduction in quantity demanded
Contraction of supply
Movement along the supply curve
Fall in price reduces quantity supplied
Cross price elasticity of demand
Measure of responsiveness of quantity demanded for one good to a change in price of another good
Demand
The Quantity of a good or service people are willing to buy at a given price at a given time period
Demand curve
A graphical representation of the relationship between price and quantity demanded
Downward sloping- due to the law of demand.
Demand is price elastic
Quantity demanded changes more than proportionately to a change in price
Demand is price inelastic
Quantity demanded changes less than proportionately to a change in price.
Diminishing marginal utility
The consumption of an additional unit of a good yields less utility than the consumption of the previous unit.
Derived demand
Good is in demand as a result of demand for something else
Usually because the first good can be used to produce the second.
Effective demand
Willingness to buy backed by ability to pay
Elasticity
Responsiveness of one variable to a change in price of another
Excess demand
Quantity demanded exceeds quantity supplied, indicating the current price is below the equilibrium.
Excess supply
The quantity supplied exceeds quantity demanded, indicating the current price is above the equilibrium price.
Extension of demand:
A movement along the demand curve whereby a decrease in price leads to an increase in quantity demanded.
Extension of supply:
A movement along the supply curve where an increase in price leads to an increase in quantity supplied.
YED: Income elasticity of demand
A measure of responsiveness of quantity demanded for a good to a change in income