Economics Flashcards
What is utility?
And how can it be measured
Utility is the satisfaction gained from consuming a good or service.
We can measure the satisfaction of a product by the price people are willing to pay for it.
What is Marginal utility?
The satisfaction gained from consuming an extra unit of a good or service
What is total utility?
Total satisfaction gained from a good or service
What is the law of diminishing marginal utility?
As a person consumes more of a good in a certain amount of time, the utility gained from each extra unit decreases. Until the maximum is reached and no more satisfaction can be gained
What way does a supply curve slope?
What way does a demand curve slope?
Upwards
Downwards
Why does a demand curve slope downwards? Give 3 reasons-
And define them
Income effect - if income stays the same and price of a good or service goes down in price more can now afford it
Substitution effect as prices rise or income decreases consumers look for cheaper alternatives
Law of diminishing marginal utility - as consumers have more of a product they are less willing to pay as much for an extra unit
Why does a supply curve slope upwards?
When prices rise firms should make more profit per unit therefore there’s is more incentive to raise supply
New firms entering the market, higher prices make it easier for new firms to start producing this product, therefore more is supplied at a higher rather than lower price
When output rises firms costs may rise, therefore a higher price is needed to justify the extra output and cover these extra costs of production
Ceteris paribus
All other things equal
Define equilibrium
A balance
Forces are balanced
Give reasons why people spend
The desire to own or want something
Fashionable
Cheap
Good value
Why do people save
So that they always have access to money and won’t run out as long as they’re cautious.
To have for later life
Extension of demand is
Contraction of demand is
Extension more/increase in supply or demand
Contraction less/decrease in supply or demand
Define effective demand
the level of demand that represents a real intention to purchase by people with the means to pay.
Describe determinants of demand and give examples
Provide of a good or service
Income of buyers
Quality of product
Describe a complimentary good with example
Define a substitute good with example
A good that goes well with another like bread and soup
A good you can have instead like coke instead of Pepsi
