WEEK 1|Consumption and demand: Flashcards
Micro & Macro economics: the role of data, production, consumption and exchange, consumption baskets, sources of consumer survey data
What is an economic activity?
what is the law of supply and demand?
Demand curve - demand vs price
Demand for each price point summarized over a range of price points is called a demand schedule
supply curve - supply vs price
Equilibrium Point is when demand = supply
What are some of the factors affecting the demand and supply?
- price
- income
3.
What are economic models
mathematical representations of relationships between stakeholders of economics is called economic models. One such model is called the circular flow model. This model identifies the following stakeholders 1. Firms 2. Households 3. Product Markets 4. Resource Markets 5. Government
What is production?
Production is the process of converting raw materials into useful good/service.
What is the most important decision of a producer / Manufacturer?
With the given prices of inputs they choose such combinations which minimise cost of production so that they earn maximum profit.
What is consumption?
Consumption is that economic activity which is concerned with the use of goods and services for the direct satisfaction
of individuals and collective wants.
Consumption activity is the base of all production activities.
There would not be production if there was no consumption
Who is a consumer?
A consumer is a person who consumes goods and services for the satisfaction of his/her wants.
What is the most important decision taken by the consumer?
Study of consumption behaviour: How people use their given /limited means for the purchase of different goods and services, so that their satisfaction is maximised.
What is Consumption Theory?
In Consumption Theory we formulate a set of standard relationships explaining how consumers tend to behave.
What is Exchange?
Exchange is that economic activity which is concerned with sale and purchase of commodities.
* In simple terms barter or buying and selling
What an entity produces and what it consumes?
What drives consumers’ choice?
Utility ! When economists talk about consumer choice, what they are referring
to is the combination of goods and services a consumer purchases.
To understand how a household will make its choices, economists look
at what consumers can afford, as shown in a budget constraint and
the total utility or satisfaction derived from those choices.
What is Utility?
Utility is the term economists use to describe the satisfaction or happiness a person gets from consuming a good or service
What is the role of Prices?
The fact that goods have value can be ascribed ultimately to the limitations in the world’s material endowment.
* That is why goods have prices; if they were available in unlimited supply they would be free.
* Price usually serves as the rationing device whereby their use is kept down to the available supply.
In a market economy the relationship between the price of a good and the quantity supplied depends on the cost of making it, and that cost, ultimately, is the cost of not making other goods. The market mechanism enforces this relationship
What is an inferior good?
When income increases, quantity demanded decreases. Such goods are called inferior goods
