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Economics - Micro > How Markets Work > Flashcards

How Markets Work Flashcards

1
Q

What things must we assume about the Consumer and Producer?

A
  • Consumers aim to maximize utility - Firms aim to maximize profits
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2
Q

Factors that cause a shift in the Demand Curve??

A
  • Changes in price of a substitute good - Changing Price of a complement - Changes in incomes of customers - Effects of advertising and marketing
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3
Q

Factors that cause a movement ALONG the demand curve?

A
  • A change in price causes a change in Quantity Demanded
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4
Q

What are the Conditions of Demand?

A
  • Income - Quality - Advertising - Substitutes - Complements - Weather - Expectations
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5
Q

What is the concept of Diminishing Marginal Utility?

A
  • It states that the marginal utility of a good or service declines as its available supply increases.
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6
Q

How does the concept of Diminishing Marginal Utility effect the demand curve?

A
  • As people consume more they want less of the product so high supply leads to lower demand.
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7
Q

What is Price Elasticity of Demand?

A
  • Measures the responsiveness of demand after a change in a product’s own price.
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8
Q

What is Income Elasticity of Demand?

A
  • Measures the relationship between a change in quantity demanded for good X and a change in real income.
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9
Q

What is Cross Elasticity of Demand? (XED)??

A
  • Measures the responsiveness of demand for good X following a change in the price of a related good Y.
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10
Q

What is the Price Elasticity of Demand formula?

A
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11
Q

What is the Income Elasticity of Demand Formula?

A
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12
Q

What is the Cross Elasticity of Demand Formula?

A
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13
Q

What is Unitary Demand?

A
  • = 1
  • A change in Price causes and equal change in Quantity Demanded
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14
Q

What is Perfectly Elastic Demand?

A
  • where the coefficient is infinite
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15
Q

What is Relative Elastic Demand?

A
  • When the percentage change in quantity demanded is greater than the percentage change in price
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16
Q

What is Relative INELASTIC demand?

A
  • More change in the price of the goods but less change in demand for the goods.
17
Q

What is Perfectly INELASTIC Demand?

A
  • If Ped = 0 demand is perfectly inelastic
  • demand does not change at all when the price changes

– the demand curve will be vertical.

18
Q

What kind of good has a negative income elasticity of demand?

A

Luxury good

19
Q

What will an increase in income lead to?

A
  • An increase in income will lead to a fall in the demand and may lead to changes to more luxurious substitutes.
20
Q

What is a positive income elasticity of demand associated with?

A
  • Normal Goods

Economics - Micro (32 decks)

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