Consumer Behaviour and Demand Flashcards
Behaviour economics
A branch of economics that accepts that consumers and other economic agents do not always act rationally and looks at why this might be so
Default
To fail to pay money that you owe at the right time
Economic Welfare
The level of well-being or prosperity or living standards of an individuals or group of individual or group of individuals such as a country
Homo-economicus
The rational human used by economists when constructing, explaining and verifying models
Macroeconomics
The study of the economy as a whole, including inflation, growth and unemployment
Microeconomics
The study of the behaviour of individuals or groups such as consumers, firms or workers, typically within a market context
Neo-classical theory
A theory or economics that typically starts with the assumption that economic agents will maximise their benefits and act rationally, and that develops how resources will be allocated in markets and at what price through the forces of demand and supply; the margin is a key concepts in Neo-classical theory
Utility
The satisfaction or benefit derived from consuming a good or a set of goods
Conditions of demand
Factors other than price, such as income or the price of other goods, which lead to changes in the demand and are associated with shifts in the demand curve
Consumer surplus
The difference between how much buyers are prepared to pay for a good and what they actually pay
Contraction of demand
When quantity demand demand for a good falls because its price rises; it is shown by a movement up the demand curve
Demand curve
The line on a price/quantity diagram that shows the level of level of effective demand at any given price
Demand or effective demand
The quantity purchased of a good at any given price, given price, given that other factors of demand remain unchanged
Extension of demand
When quantity demanded for a good increases because its price falls; it is shown by a movement down the demand curve
Law of diminishing marginal utility
The value or unity that individual consumers gain from the last product consumed falls the greater the number consumed. So the marginal unity of consuming the sixth product is lower than the second product consumed
Shift in the demand curve
A movement of the whole demand curve to the right or left of the original caused by a change in any variable affecting demand excepting price
Underlying growth rate
The long-run average growth rate for an economy over a period of time
Elastic (demand)
Where the price elasticity of demand is greater than 1. The responsiveness of demand is proportionally greater than the change in price. Demand is perfectly elastic if elastic if price elasticity of demand is infinty
Inelastic (Demand)
Where the price elasticity of demand is less than 1. The responsiveness of demand is proportionally less than the change is price. Demand is perfectly inelastic if price elasticity of demand is zero
Price elasticity of demand or own price elasticity of demand
The proportionate response of change in quantity demanded to a proportion change in price, measured by the formula
Total expenditure
Quantity bought multiplied by the average price of a product
Total revenue
Quantity sold multiplied by the average price of a product
Unitary elastically
Where the value of price elasticity of demand is 1. The responsiveness of demand is proportionally equal to the changed in price
Complements
Goods that are purchased with other goods to satisfy a want. complements have a negative cross elasticity of demand with each other
Cross elasticity or cross-price elasticity of demand
A measure of the responsiveness of quantity demanded of one good to a change in price of another good. It is measured by dividing the percentage change in quantity demanded of one good by the percentage change in quantity demanded of one good by the percentage change in quantity demanded of one good
Income elasticity of demand
A measure of the responsiveness of quantity demanded by the percentage change in quantity demanded by the percentage change in income
Inferior goods
Goods for which demand falls when income. increases
Normal goods
Goods for which demand increases when incomes increases
Substitutes
Goods that can be replaced by another to satisfy a want. Substitutes have a positive cross elasticity of demand with each other
