Topic 3 Flashcards
Demand meaning
Quality of goods consumers are willing to purchase for a mixed price
Cross elasticity meaning
How the demand of one good affects the demand of another
PED formula
Percentage change in price / percentage change in demand
Cross elasticity of demand formula
Percentage change in quantity demanded of good A / percentage change in price of Good B
What does a vertical and horizontal line mean on a PED graph
Vertical - in elastic horizontal = elastic
Things that affect PED
Necessities, brand loyalty
What effects YED
Inferior goods - YED < 0 , demand will fall when income increases e.g. bus journeys
Luxury goods - YED > 1 , elastic, increase in income causes an even bigger increase in demand e.g. holidays
Normal goods - YED > 0 . Demand increases as income increases
Functions of the price mechanism
Rationalising = occurs first, where their is express supply or demand
Signalling = second , signals for suppliers to either decrease price if their is excess supply or increase price if their is excess demand
Incentive = opportunity to get more profits
What is joint demand
Goods are bought together e.g. knifes + fork
What is Competitive demand
Occurs when there are alternative services of products for a consumer to choose from
What is composite demand
Demand for a good that has more than 1 use e.g. milk
What is Derived demand
When the demand for a good is dependant on the demand for another good e.g. bricks and houses
What is joint supply
When supply of one good automatically links to the supply of another good e.g. beef and leather
What is a disequilibrium
Short term change in equilibrium
What is an equilibrium
Where supply and demand meet
