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microeconomics > demand > Flashcards

demand Flashcards

1
Q

define demand

A

the amount that consumers are willing and able to buy at each given price point

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2
Q

define effective demand

A

demand backed by the ability to pay

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3
Q

when does extension in demand occur

A

when the price falls quantity demanded rises

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4
Q

when does contraction in demand occur

A

when prices rise and quantity demanded falls

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5
Q

what are the factors of production?

A

• labour
• land
• capital
• enterprise

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6
Q

define price elasticity of demand

A

measures the responsiveness of quantity demanded to a change in the price of a good

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7
Q

what’s the price of elasticity of demand calculation

A

percentage change in quantity demanded divided by the percentage change in price

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8
Q

what number is price elastic demand less than

A

-1

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9
Q

for price elastic demand what does a fall in price mean?

A

quantity demanded rises by proportionally more than the price cut increasing total revenue

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10
Q

what number is price inelastic demand between?

A

0 and -1

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11
Q

What happens when price falls in price inelastic demand?

A

Quantity demanded increases but by a smaller proportion than the fall in price

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12
Q

Is quantity demanded relatively unresponsive or responsive to price changes

A

Unresponsive

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13
Q

Does total revenue fall when prices falls or rise

A

Fall

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14
Q

What is it called when Ped is 0

A

Perfectly inelastic

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15
Q

what happens when prices change when PeD is 0

A

There is no effect on quantity demanded at all it remains the same

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16
Q

What happens to total revenue when prices fall when PeD is 0?

A

Total revenue must fall as quantity demanded does not change when prices fall

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17
Q

What is it called then PeD is infinity?

A

Perfectly elastic demand

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18
Q

What happens to demand when PeD is infinity?

A

Demand is infinite at a specific price

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19
Q

What would a change in price mean when PeD is infinity?

A

Eliminates all demand for the product

20
Q

What is it called when PeD is -1?

A

Unitary price elasticity of demand

21
Q

What does a change in price bring about when PeD is -1

A

The same proportionate change in quantity demanded

22
Q

What will happens to total revenue from a price cut when PeD is -1

A

It will remain the same

23
Q

What factors determine PeD?

A

• availability of substitutes
• time
• whether the food is a luxury or necessity
• proportion of income spent on a good

24
Q

What factors determine PeD?

A

• availability of substitutes
• time
• whether the food is a luxury or necessity
• proportion of income spent on a good

25
Q

Define income elasticity of demand

A

Measures the responsiveness of quantity demanded to a change in income

26
Q

What is the formula for income elasticity of demand

A

% change in quantity demanded divided by % change in income

27
Q

What number is it between when demand is income inelastic?

A

between 0 and 1 or 0 and -1

28
Q

What numbers are for demand income elastic?

A

below 1 or below -1

29
Q

What do positive numbers mean in income elasticity of demand?

A

The good is normal demand rises as income rises

30
Q

What do positive numbers mean in income elasticity of demand?

A

The good is normal demand rises as income rises

31
Q

Why do we compare goods in income elasticity of demand?

A

To determine if they are normal necessitates or normal luxuries

32
Q

What do negative numbers mean in income elasticity of demand?

A

Negative numbers mean the good is inferior so demand falls as income rises

33
Q

Define complementary product

A

Goods that are consumed together

34
Q

Define normal good

A

goods or services that will see an increase in demand when income rises

35
Q

Define inferior good

A

Goods or services that will see demand fall when income rises

36
Q

Define composite demand

A

a good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the supply for the other purposes

37
Q

Define derived demand

A

When the demand for one good or service comes from the demand for another good or service. That is the good is a component of the other good

38
Q

Define cross price elasticity of demand

A

A measure of the responsiveness of quantity demanded of one good to a change in the price of another good

39
Q

What’s the calculate for cross price elasticity of demand

A

% change in quantity demanded of good A divided by % change in price of good B

40
Q

What will Xped be for subsititues

A

Xped will be positive

41
Q

What substitute is it when the Xped is low and less than 1

A

weak

42
Q

What substitute is it when the Xped is high and greater than 1

A

Strong

43
Q

What will Xped be for complements

A

Negative

44
Q

What’s complement is it when Xped is between -0 and -1

A

weak

45
Q

What complement is it when Xped is less than -1

A

strong

microeconomics (4 decks)

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