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Micro-Economics > Demand And Supply > Flashcards

Demand And Supply Flashcards

1
Q

What is the objective of economic policy?

A

The maximisation if the output of the economy’s product

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2
Q

On the PPF how what should determine at which production should take place?

A

The free market

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3
Q

What is micro-economics?

A

The study of the reaction of individuals and firms to condominium stimuli

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4
Q

What is effective demand?

A

A want high the consumer has the resources to satisfy

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5
Q

What causes a movement along the demand curve?

A

A change in price of the product

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6
Q

What causes a shift in demand?

A

A change in anything other than the price of the product! E.g
The price of substitute and complementary goods, tastes, incomes and other factors such as advertising and marketing

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7
Q

What is an inferior good?

A

One which demand decreases as income increases

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8
Q

Economics is the study of what?

A

The allocation of scarce resources

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9
Q

What causes a shift in supply?

A

A change in the costs of production

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10
Q

Demand is a function of what?

A 
Price 
Prices of other goods
Tastes 
Incomes
Other factors e.g. Advertising
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11
Q

What is elasticity?

A

A concept to explain the degree of sensitivity demand exhibits in respect of theses factors!

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12
Q

What is the formula for elasticity?

A

% ^ in qd/ % ^ in demand factor

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13
Q

What is price elasticity of demand (PED)

A

It reflects the sensitivity of demand with regard to changes in the price of the good

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14
Q

What is the formula for PED?

A

% ^ in qd/% ^ in p

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15
Q

What is the relationship between price and demand?

A

It is inverse

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16
Q

What does the size of the value indicate with regard PED

A

The degree of responsiveness

17
Q

What is elastic demand?

A

When elasticity is greater than -1

18
Q

What is perfect elasticity?

A

A horizontal demand curve where price is unaffected by demand

19
Q

What does it mean if PED is elastic?

A

Demand is more than proportionately responsive to changes in price

20
Q

What is in elastic demand?

A

When elasticity is between -1 and 0

21
Q

What does it mean if PED is inelastic

A

Demand is less than proportionately responsive to changes in prices

22
Q

What is perfect elasticity?

A

It will be shown by a vertical demand curve where demand remains the same regardless of the price

23
Q

What is unit elasticity?

A

Where elasticity is -1 and is where a fall in price will cause a proportional increase in demand

24
Q

How is the calculation for PED done?

A

The percentage change of both quantity and price is done by dividing the change by the starting price or quantity value

25
Q

Where is a demand curve inelastic and elastic?

A

The top of the demand curve is elastic as a small % ^ in price will lead to a greater than proportional % ^ in demand.

The bottom is inelastic as a large % ^ in price will lead to a less than proportional % ^ in demand

26
Q

What does XED measure?

A

The relationship between quantity demanded of one good and a change in the price of another good

27
Q

What does it meant if XED is positive?

A

The QD of the good is rising as the price of that other food is itself rising. This suggests that the two goods are substitutes

28
Q

What does it mean if XED is negative?

A

The QD of the good will decrease as the price of the other good increases. Meaning these goods are complementary

29
Q

What does it mean if YED is positive?

A

As income increases quantity demanded increases indicating that the good is a normal good!

30
Q

What does it mean if YED is negative?

A

As income increase QD decreases indicating it is an inferior good

31
Q

What is a Giffen good?

A

Staples of diet - where as income decreases consumption will increase reflecting the fact that as incomes are contracted, the consumer has to retreat to the staples in order to keep themselves alive! Not all inferior goods are Giffen goods

32
Q

What is the formula for PES?

A

% ^ in QS/% ^ in p

33
Q

What does PES measure?

A

The sensitivity of quantity supplied to changing prices

34
Q

What difference is important about PED and PES?

A

The answers for demand will be negative whilst the answers for supply will be positive

35
Q

What is the formula for YED?

A

% ^ in QD/% ^ in Y

Micro-Economics (5 decks)

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