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Economics Micro > theme 1 chapter 1 > Flashcards

theme 1 chapter 1 Flashcards

1
Q

what is effective demand

A

consumer is both willing and able to purchase a good at a given price

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2
Q

what do you call a fall in demand and rise in demand

A

contraction
extension

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3
Q

what are the 8 conditions of demand

A
  1. seasonality
  2. advertising
  3. income
  4. government legislation
  5. population
  6. demographics
  7. trends and fashions
  8. price of other goods
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4
Q

what is the rational behaviour for consumers

A

maximise utility (satisfaction)

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5
Q

what is the rational behaviour for firms

A

maximise profit

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6
Q

what is the concept of diminishing marginal utility

A

as extra units are consumed additional satisfaction decreases. as a result the prices we are willing and able to pay decreases, which is why demand curve has negative gradient.

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7
Q

when will the rational consumer stop consuming

A

when marginal utility reaches 0

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8
Q

What is PED

A

the responsiveness of demand to a change in price

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9
Q

what is the formula for PED

A

&change of QD / %change of price

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10
Q

Price elastic meaning, PED values and steepness of curve and how to increase TR

A

change in price leads to a more than proportionate change in demand
PED > 1
curve has a shallow negative gradient
decrease price

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11
Q

price inelastic meaning, PED values and steepness of curve and how to increase TR

A

change in price leads to a less than proportionate change in demand
PED < 1
curve has a steep negative gradient
increase price

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12
Q

What does it mean if PED is unitary

A

change in price leads to an equally proportionate change in demand
PED = 1
curve is at a perfect diagonal

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13
Q

What are the 6 factors that effect PED

A
  1. necessity vs luxury (N=I , L=E)
  2. level of addiction (L=E , H=I)
  3. number of substitutes (L=I , H=E)
  4. % of salary (L=I , H=E)
  5. short run vs long run (S=I , L=E)
  6. breathe of definition (L=E , H=I)
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14
Q

What is YED

A

the responsiveness of demand to a change in income

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15
Q

what is the formula for YED

A

&change of QD / %change of income

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16
Q

income elastic meaning, YED values and curve steepness + type of good it is

A

change in income leads to a more than proportionate change in demand
YED > 1 (positive)
curve is shallow and positive gradient
normal luxury good (champagne)

17
Q

income inelastic meaning, YED values and curve steepness + type of good it is

A

change in income leads to a less than proportionate change in demand
YED < 1 (positive)
curve is steep and positive gradient
normal necessity good (baked beans)

18
Q

what is an inferior good, its YED values and curve orientation

A

as income increases demand decreases or as income falls demand increases.
YED < 0 (negative)
curve has negative gradient

19
Q

what is XED

A

responsiveness of demand of good A after price changes of good B

20
Q

formula for XED

A

%change in QD of (A) / %change in price of (B)

21
Q

What does a positive XED mean, an example and orientation of curve

A

increase in price of good B results in the increase in demand for good A
Substitute goods - coke and Pepsi
positive gradient

22
Q

What does a negative XED mean, an example and orientation of curve

A

increase in price of good A results in a decrease in demand for good B
complimentary goods - petrol and cars
negative gradient

23
Q

what does it mean if XED = 0

A

there is no relationship between the goods

24
Q

what does it mean if XED value is really far from 0

A

relationship between goods is stronger

25
Q

what is meant by perfectly inelastic demand, its value and curve orientation

A

change in price leads to no change in demand
PED = 0
curve is vertical
water

26
Q

what is meant by perfectly elastic demand, its value and curve orientation

A

change in price leads to an infinite change in demand
PED = infinite
curve is horizontal
nothing

27
Q

Supply meaning

A

the amount a producer is willing and able to supply at a given price

28
Q

what are the 7 conditions of supply

A
  1. weather for farmers
  2. new technology
  3. external shocks
  4. indirect tax
  5. government subsidies
  6. number of firms in market
  7. discovery of new resources
29
Q

PES meaning

A

responsiveness of supply to a change in price

30
Q

PES formula

A

%change in QD / %change in price

31
Q

price elastic meaning, PES values and steepness of curve

A

change in price leads to a more than proportionate change in supply
PES > 1
curve is positive and shallow

32
Q

price inelastic meaning, PES values and steepness of curve

A

change in price leads to a less than proportionate change in supply
PES < 1
curve is positive and steep

33
Q

What does it mean if PES is unitary

A

change in price leads to an equally proportionate change in supply
PES = 1
curve is at a perfect diagonal

34
Q

what are the 5 factors that effect PES

A
  1. level of spare capacity (high-E , Low-I)
  2. Time period (short-I , long-E)
  3. level of stock (high-E , low-I)
  4. level of perishability (high-I , low-E)
  5. barrier to entry (lots-I , little-E)

Economics Micro (1 decks)

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