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Economics Year 1 - Micro > Markets/Price determination > Flashcards

Markets/Price determination Flashcards

1
Q

demand

A

The desire and willingness to purchase a product at a given price

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2
Q

effective demand

A

willingness and ability to purchase a product at a given price

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3
Q

law of diminishing marginal utility

A

the utility gained from extra units of good is lower when you have many units already

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4
Q

law of demand

A

inverse relationship with quantity demanded and price

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5
Q

what are exceptions to the law of demand

A

when price increases demand increases

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6
Q

veblen goods

A

consumers may view higher prices as a sign of better product quality, this is usually seen in luxury goods

  • high end watches and cars, gives them a feel of wealth
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7
Q

Speculative goods

A

when the price of a good increases, investors may believe that the price will continue to increase and so they invest in it.

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8
Q

what factors cause a demand to shift

A
  • changes in the price of a substitute
  • changes in the price of a complementary good
  • changes in real income
  • change in fashion - taste and preferences
  • marketing
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9
Q

Substitute good

A

if the price of good X increases the demand for good Y will increase

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10
Q

complementary good

A

if the price of good X increases the demand for good Y decreases

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11
Q

real income

A

The value of incomes received after allowing for inflation.

-the moneys purchasing power

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12
Q

changes in real income - normal good

A

demand for normal goods increases when income increases. most goods are normal goods

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13
Q

changes in real income - inferior good

A

demand for inferior goods decreases when real incomes increase

inferior goods are sub standard goods

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14
Q

Example of an inferior good

A

groceries

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15
Q

changes in fashion and marketing

A

inward shift (left) is caused by something going out of fashion or receiving less marketing

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16
Q

An elasticity measures…

A

How much a variable changes when another variable changes

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17
Q

Price elasticity of demand measures… (PED)

A

The responsiveness of quantity demand to changes in price

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18
Q

PED formula

A

% change in price

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19
Q

What does the elasticity formula measure

A

An elasticity measures how much the top variable changes due to a change in the bottom variable

20
Q

perfectly inelastic PED value

A

0

21
Q

inelastic PED value

A

0 > PED > -1

22
Q

unit elastic PED value

A

-1

23
Q

elastic PED value

A

-1 > PED > -infinity

24
Q

perfectly elastic PED value

A
  • infinity
25
Q

elastic demand definition

A

When the percentage change in demand is greater than the percentage change in price.

26
Q

inelastic demand definition

A

When the percentage change in demand is less than the percentage change in price.

27
Q

Unitary demand defintion

A

When the percentage change in quantity demanded is equal to the percentage change in price.

28
Q

what does Income elasticity of demand measure

A

measures the responsiveness of a variable to changes in another variable

29
Q

Income elasticity of demand definition

A

Measures the responsiveness of demand to changes in income

30
Q

What is Y

A

income

31
Q

YED

A

proportionate change in Y

32
Q

real income changes

A

the amount of purchasing power consumers have will affect demand for all products

33
Q

how is demand effected when real income increases

A

demand for normal goods goes up

demand for inferior goods goes down

34
Q

relationship with demand for normal goods and real income changes

A

direct relationship

increase income causes an outward shift in demand

35
Q

when is YED > then 0

A

real income increases, Qd is positive and Y is positive
positive number
YED = —————————–
positive number

YED > 0 when incomes increases
normal good

36
Q

relationship with demand for inferior goods and real income changes

A

inverse relationship

increase in income causes an inward shift

37
Q

When is YED < 0

A

real incomes decrease, QD are negative and Y is positive

YED = negative number / positive number

YED < 0 when incomes decrease

38
Q

how does demand change for necessary goods

A

demand rises slowly as incomes rises

0<YED<1

39
Q

How does demand change for luxury goods

A

Demand rises quickly as income increases

YED > 1

40
Q

Normal goods examples

A
  • necessary goods
  • luxury goods
41
Q

XED stand for

A

cross elasticity of demand

42
Q

What does XED measure

A

measure responsiveness of demand to changes in the price of another good

43
Q

XED equation

A

proportionate change in PB

A = good A
B = good B

44
Q

Substitute goods

A

if the price of good x increases, demand for good Y increases

45
Q

How do we use XED to measure a substituted good

A

if price of good B increases, QDA is positive and PB is positive

XED = positive Qda / positive Pb = >0

> 0 = subsitiute good

46
Q

Complementary goods

A

if the price of good x increases, the demand for good Y decreases

47
Q

How can we use XED to measure a complemantary good

A

if price of good B increases, QDA is negative and PB is positive

XED = negative QDA / positive PB = < 0

< 0 = complemtary good

Economics Year 1 - Micro (3 decks)

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