The Allocation Of Resources In A Free Market Flashcards
What is the definition of demand?
The amount that a consumer is willing and able to buy at a given price
What are the factors that affect demand? (PASIFC)
Population Advertising Substitute Income Fashion Compliment
What causes a movement along the demand curve?
Change in price
What is derived demand?
The demand for one good leads to the demand for another
What is composite demand?
The demand for one good has more than one use
What is the definition of supply?
The amount that a producer is willing and able to provide at a given price
What are the factors that affect supply? (PINTWC)
Productivity Indirect tax Number of firms Technology Weather Cost of production
What causes a movement along the supply curve?
A change in price
What is joint supply?
The production of one good results in the production of another
What is elasticity?
Measures the responsiveness of demand/supply to a change in something
What is the equation for price elasticity of demand? (PED)
% change in Q.D/ % change in P
What is the equation for income elasticity of demand? (YED)
% change in Q.D/ % change in Y
How can you tell if a good is normal or inferior?
A normal good has a + YED. An inferior has a - YED
What is the equation for cross price elasticity of demand? (XED)
% change in Q.D of good A/ % change in P of good B
How can you tell if a good is a substitute or a compliment?
A substitute has a + XED. A compliment has a - XED.
