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Economics > 1.2 How markets work > Flashcards

1.2 How markets work Flashcards

1
Q

What is rational decision making

A

When consumers act logically to to maximise their utility

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2
Q

What are three factors that affect Demand

A

-Income
-Trends
-Price of substitutes
-Price of complements
-Size of population
-Amount of advertisement

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3
Q

What is diminishing marginal utility

A

When a person consumes more and more of a product their satisfaction decreases

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4
Q

What does PED stand for

A

Price elasticity of demand

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5
Q

What is the equation for PED

A

PED= % change in quantity demanded ÷ % change in prices

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6
Q

If the value is between 0 and -1 is it elastic or inelastic

A

Inelsatic

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7
Q

If the value is -1 is it elastic or inelastic

A

Elastic

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8
Q

If the value is between -1 and infinity is it elastic or inelastic

A

Elastic

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9
Q

What factors effect PED (PLANTS)

A

Proportion of income
Luxury
Addictive
Necessity
Time
Substitutes

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10
Q

What is YED

A

Income elasticity of Income

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11
Q

What is the equation of YED

A

YED= % change in quantity ÷ % change in income

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12
Q

What is a normal good

A

A good that rises in demand when there is a increase in income

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13
Q

What is a inferior good

A

a good that falls in demand when there is a increase in income

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14
Q

What sign does a normal good have

A

+ (Positive)

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15
Q

What sign does a inferior good have

A
  • (Negative)
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16
Q

What does XED stand for

A

Cross Elasticity of Demand

17
Q

What is the equation for XED

A

XED= % change in quantity demanded in good A ÷ % change in price in good B

18
Q

What XED value does a substitute good have

A

Positive number

19
Q

What XED value does a complementary good have

A

Negative number

20
Q

What does PES stand for

A

Price Elasticity of Supply

21
Q

What is the equation for PES

A

PES= % in Quantity Supplied ÷ % change in price

22
Q

Define price elasticity of supply

A

The responsiveness to supply of a good or service after a change in its price

23
Q

What does it mean if the PES value is 0

A

Perfectly Inelastic Supply

24
Q

What does it mean if the PES value is infinity

A

Perfectly Elastic Supply

25
Q

What does it mean if the PES value is between 0 and 1

A

Inelastic Supply

26
Q

What does it mean if the PES value is 1 and infinity

A

Elastic Supply

27
Q

What factors can influence PES of a good (BRITS)

A

Barriers to enter market
Resources
Inventory
Time
Spare Capacity

Economics (8 decks)

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