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Micro Year 1 > Demand and Elasticity of Demand > Flashcards

Demand and Elasticity of Demand Flashcards

1
Q

What is demand

A

The quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period

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2
Q

Why is the demand curve downwards sloping

A

Real income effect - purchasing power of income falls
Substitution effect - if the price of one good rises people will swap to alternatives

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3
Q

What causes a shift in the demand curve

A

-consumer taste
-income
-price of substitutes
-price of compliments
-speculation

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4
Q

What is price elasticity of demand

A

The responsiveness of demand to a change in price

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5
Q

What is the formula for PED

A

%change in quantity demanded / %change in price

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6
Q

When is a good price elastic (PED)

A

PED is greater than one

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7
Q

When is a good price inelastic (PED)

A

When PED is less than one

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8
Q

What is unit elasticity

A

When PED = 1

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9
Q

What determines the PED

A

-number of close substitutes
-habits
-proportion of income spent on the good
-postpone-ability of purchase

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10
Q

What is cross elasticity of demand (XED)

A

The quantity demanded of one good in response to a change in price of another

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11
Q

What is the formula for XED

A

%change in quantity demanded of good a / %change in price of good b

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12
Q

What does a positive XED mean between 0 and 1

A

Weak Substitutes

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13
Q

What does a positive XED mean greater than 1 mean

A

Strong substitutes

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14
Q

What does a negative XED mean between 0 and -1

A

Weak complements

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15
Q

What does a negative XED mean less than minus 1

A

Strong complements

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16
Q

What does a XED of 0 mean

A

Independent goods - no relationship

17
Q

What is income elasticity of demand (YED)

A

The responsiveness of quantity demanded to a change in income

18
Q

What is the formula for YED

A

%change in quantity demanded / % change in income

19
Q

What does a negative YED mean

A

Inferior good - when income rises we spend less on it

20
Q

What does a positive YED greater than one mean

A

Normal good - luxury - income elastic

21
Q

What does a positive YED between 0 and 1mean

A

Normal good - necessity - income inelastic

22
Q

What is a normal good

A

A good which we buy more of when our income increases

23
Q

What is an inferior good

A

A good which we buy less of when our income rises

Micro Year 1 (9 decks)

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