Demand and Elasticities Flashcards
why does the demand curve slope down
because of diminishing marginal utility
each extra unit a consumer buys decreases in utility, so they are willing to pay lower prices for each additional good that they buy
non-price determinants of demand which cause shifts
change in demographic change in income change in substitute goods prices natural disasters/natural impacts change is preferences due to advertising
what is a normal good
a good which will be more demanded if income increases
what is an inferior good
less demand when income increases
what is a substitute good and what are the relationships
an alternative to another good, if the price of one goes up the demand for it will fall and the demand for substitute will increase
what is a complementary good and relationship
goods used together, joint demand
what is derived demand
demand in a good used to make another good eg demand for wood increases when demand for fencing
what is composite demand
demand for a good which has more than one use eg oil makes plastic and petrol
PED formula
percentage change in QD/percentage change in P
YED formula
percentage change in QD/percentage change in real income
XED formula
percentage change in QD of A/percentage change in price of good B
elasticity of demand definition
the responsiveness of demand to a change in price
YED definition
the responsiveness of demand to a change in income
XED definition
the responsiveness in demand of a good to a change in price of another good
types of PED
elastic, inelastic, unit elastic