Micro 3 Flashcards

1
Q

What is Utility theory

A

When making economic decisions, consumers aim to maximise their utility and firms aim to maximise profits

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2
Q

What is the law of diminishing marginal utility

A

When an extra unit of the good is consumed, the marginal utility falls therefore the consumer is willing to pay less for the good

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3
Q

What is Utility maximisation

A

Maximisation for consumers is when consumers aim to generate the greatest utility possible from an economic decision.
Firms aim to generate the greatest profit possible

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4
Q

What is demand

A

The amount of goods and services consumers are able and willing to buy at a given price at a given time.

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5
Q

What is the law of demand

A

When price goes up - demand decreases
When price goes down - demand increases

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6
Q

What is a demand curve

A

Shows the relationship between price and quantity demanded

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7
Q

What does the term ‘ceteris paribus’ mean

A

When all other factors remain the same

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8
Q

What happens when price increases on the demand curve

A
  • A contraction along the demand curve
  • Quantity demanded decreases
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9
Q

What happens when price decreases on the demand curve

A
  • An extension along the demand curve
  • Quantity demanded increases.
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10
Q

What are non-price factors that affect demand

A
  • Income
  • Taste and habits
  • Price of related goods
  • Future price expectation
  • Population
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11
Q

What are substitute goods

A

Goods which perform similar roles so that they can replace one another

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12
Q

What is the income effect

A

As price for a good or service fall, people can afford to buy more of it with their current level of income

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13
Q

What is the substitution effect

A

When price increases of goods and services, consumers will turn to substitute goods to meet their wants and needs

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14
Q
A
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