Theme1 Flashcards
Define inelastic demand
Low change in demand to a change in price
Define Elastic demand
High change in demand to a change in price
Define Diminishing marginal utility
As the amount consumed increases, the utility from each marginal unit decreases
Price elasticity of demand equation
Percentage change in quantity demanded/percentage change in price
Price elasticity of supply equation
% change in quantity supplied/% change in price
Income elasticity of demand equation
% change in quantity demanded/% change in income
Cross elasticity of demand equation
% change in the quantity demanded of one good/ % change of price of another good
What are the 3 functions of the price mechanism
Rationing function, signalling function, incentive function
What is demand for labour called
Derived demand
Normative statement
Subjective statement (based on opinion)
Positive statement
Based on evidence
Production possibility frontier
A combination of two products showing the maximum output of both
Absolute advantage
Being able to produce more of something than another country. Assuming they have the same amount of resources
Comparative advantage
Being able to produce at a much lower opportunity cost
Karl Marx
Share the wealth, capitalists share profits with labour so products are good quality
Adam smith
Self interest, risk and reward
Friedrich Hayek
Only buyer and sellers understand the market, policies make things worse
Free market economy
The market looks after itself
Command
Allocated by the government
Mixed
Free market with some government interaction
Consumer surplus
Difference between what you would pay and what you did pay
Producer surplus
Difference between the price u got and the price you would’ve asked for
