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AS Level Micro-Economics > test 1 13/10/21 > Flashcards

test 1 13/10/21 Flashcards

1
Q

Define demand.

A

Demand is the amount that consumers are willing and able to buy at each given price point.

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2
Q

Define effective demand.

A

Effective Demand is the demand backed by the ability to pay.

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3
Q

What is on the x and y axis on a demand curve?

A

The x axis has the quantity and the y axis has the price.

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4
Q

Define an extension in demand.

A

Extension in demand is when an increase in quantity demanded is caused by falls in price.

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5
Q

Define a contraction in demand.

A

Contraction in demand is when a fall in quantity demanded is caused by a rise in price.

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6
Q

What are the main determinants in demand (things that shift the demand curve)?

A

Changes in income - Price of substitutes - price of complementary products - consumer confidence - changes in quality - interest rates - uncertainty over future prices - consumer tastes and preferences - population change - the law - fashion - weather conditions - advertising and publicity

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7
Q

Define complementary products.

A

Complementary products are goods that are consumed together.

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8
Q

Define substitutes.

A

Substitutes are alternative products.

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9
Q

Define inferior goods.

A

Inferior goods is when the demand of a good drops when incomes rise.

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10
Q

Define normal good.

A

Normal goods are when a good sees an increase in demand due to an increase in income.

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11
Q

Define composite demand.

A

Composite demand is when a good or service is demanded for more than one purpose so that an increase in demand for one purpose reduces the supply for the other purposes.

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12
Q

Define derived demand.

A

Derived demand is when the demand for one good or service comes from the demand for another good or service. That is, the good is a component of the other good.

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13
Q

Define Price Elasticity of Demand (PeD).

A

PeD measures the responsiveness of quantity demanded to a change in the price of a good.

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14
Q

What does it mean when PeD is below -1?

A

Price elastic. A fall in price means quantity demanded rises proportionately more than the price cut. A fall in price will increase revenue.

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15
Q

What does it mean when PeD is between 0 and 1?

A

Price inelastic. When prices fall, quantity demanded increases but by smaller proportion that the fall in price. Quantity demanded is relatively unresponsive to price changes. When price falls, total revenue will fall.

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16
Q

What does it mean when PeD is 0?

A

Perfectly inelastic. When price changes there is no effect on quantity demanded at all. When prices fall, because quantity demanded does not change at all, then total revenue must fall.

17
Q

What does it mean when PeD is infinity?

A

Perfectly elastic demand. Demand is infinite at a specific price. A change in price would eliminate all demand for the product.

18
Q

What does it mean when PeD is 1?

A

Unitary price elasticity of demand. A change in price brings about the same proportionate change in quantity demanded. Revenue will remain the same from a price cut.

19
Q

What are the factors that determine PeD?

A

Availability of substitutes - Time - If the good is a luxury or necessity - Proportion of income spent on a good

20
Q

What happens to PeD if more substitutes are available?

A

It becomes more elastic

21
Q

Are luxuries and necessities elastic or inelastic?

A

Luxuries are elastic but necessities are inelastic.

21
Q

Are luxuries and necessities elastic or inelastic?

A

Luxuries are elastic but necessities are inelastic.

22
Q

Define Income Elasticity of Demand - YeD

A

Income Elasticity of Demand measures the responsiveness of quantity demanded to a change in income.

23
Q

What is the formula for YeD?

A

% Change in Quantity Demanded / % Change in Income

24
Q

How can we tell if a good in inferior or normal by the number of YeD?

A

If YeD is negative the good is inferior - If YeD is positive the good is normal

25
Q

What does it mean when YeD is positive?

A

Normal good. The bigger the number, the more luxurious the good.

26
Q

What does it mean when YeD is negative?

A

Inferior good. The closer to zero the number is, the good is less of an inferior good compared a good with a lower YeD.

27
Q

Define Cross Price Elasticity of Demand - XPeD.

A

Cross Price Elasticity of Demand is a measure of responsiveness of quantity demanded of one good to a change in price of another good.

28
Q

What is the formula for XPeD?

A

%Change in Quantity Demanded of good A / %Change in Price of Good B

29
Q

What does it mean when XPeD is positive?

A

The two goods are substitutes. The higher the XPeD, the stronger the substitutes.

30
Q

What does it mean when XPeD is negative?

A

The two goods are complementary products. The lower the negative, the stronger the two goods as complementary products.

AS Level Micro-Economics (3 decks)

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