Microeconomics Booklet 2 Flashcards
What is demand?
The quantity of a good or service that people are willing and able to buy at a given price, in a given time period.
What is effective demand?
The willingness and ability to buy a good or service.
What is law of demand?
Inverse relationship. As price fall, quantity demanded increases and vice versa.
What is diminishing marginal utility?
The costs of consuming each additional unit of a good or service.
What is ceteris paribus?
“All other things being equal”.
What is a contraction of demand?
Leftward arrow. Increase in price meaning a decrease in quantity demanded.
What is extension of demand?
Right wards arrow. Decrease in price means increase in quantity demanded.
What is supply?
The quantity of a good or service that sellers are willing to sell at a given price, in a given time period.
What is law of demand?
Directly proportional. Price rises, quantity demanded increases.
What is a market?
A “place” where buyer and sellers come together in order to trade.
What is the market equilibrium price also known as?
Market-clearing price.
What are some factors effecting demand?
1) S - Substitutes
2) E - Expectations of future prices
3) P - Change in population
4) T - Change in tastes and preferences
5) I - Change in income
6) C - Complements
What is a normal good?
As incomes rise, demand rises.
What is an inferior good?
As demand falls, income rises.
What is a luxury good?
Type of normal good. Change in demand is more than proportionate to change in income.
What is competitive demand?
Substitutes - demand of one good falls, as demand of substitute good increases.
What is joint demand?
Complements - Need to be bought together. For example, staples and a stapler.
What are the factors effecting supply?
1) P - Change in price/ profitability
2) E - Expectations of future prices
3) C - Change in cost of production
4) T - Changes in state of technology
What is derived demand?
The demand for one good is derived from the demand of another good i.e. that is used in the production of something else.
What is composite demand?
Means that the good demand has 2 or more distinct uses.
What is joint supply?
Increase in the production of one leads to an increase in the production of another.
What is consumer surplus?
Welfare gained from the consumer who paid less for a good or service than the maximum they were willing to pay.
What is producer surplus?
Welfare gained by a seller who receives more than the minimum that they would’ve been prepared to accept.
What is PES and the equation?
Change in price is more than proportional. Percentage change in quantity demand divided by percentage change in price.
What does price elastic mean?
More than proportionate. Good being responsive to price change. For example, 5% increase in price causes quantity demanded to fall by more than 5% - price elastic.
What does price inelastic?
Price leads to a less than proportionate change in quantity demanded. For example, 5% increase in price, quantity demanded fall by less than 5%.
How do you work out percentage change?
Original - New divided by original x 100
How to calculate Income elasticity of demand (YED)?
Percentage change in quantity demanded divided by change in income.
What is XED and the equation?
Type of elasticity that examines the relationship between 2 goods. Percentage change in quantity demanded of Good A divided by percentage change in price of good B.
XED - Bigger than one?
XED - Less than one?
Bigger - Strong relationship.
Less - Weak relationship.
What is the equation of price elasticity of supply?
Change in quantity supplied divided by change in price.
