Demand Flashcards
(24 cards)
Define a positive statement
A factual statement that can be tested right or wrong
What is a normative statement
An opinion in economics that is based on personal beliefs
What is the basic economic problem
Infinite wants and finate resources
What is a PPF diagram
A graph representing the max output of two good or services
Define opportunity costs
The next best alternative forgone
What is dynamic efficiency
The economy’s ability to grow and expand its production possibilites overtime
Give me two ways of rationing scarce resources
-market price
- consumer income
- by assessment of need
- by household postcode
- by education level
- by age
- by gender
- by nationality
What are the factors of production
LAND
ENTERPRISE
LABOUR
CAPITIAL
What is allocative and productive efficiency
Productive- optimal output
Allocative- a combination of what society desires
What is Pareto efficiency
When it’s impossible to make one party better without making someone worse off
What is the substitution effect and income effect
Substitution- switch to a cheaper option]
Income- buy more since its cheaper
What is diminishing marginal utility
Additional satifaction or utility they derive from each additional unit starts to dimish - willing to pay less
What is potential (latent) demand
Not to get expressed in the market - do not have the ability to pay
What is derived demand
The demand for a factor of production that is used to produce another good or service
What is joint demand
Demand for products are interdependent
What is composite demand
Goods that have more than one use
What does ceteris paribus mean
Holding other things constant
What is PED and how do you calculate it
The responsiveness of quantity demanded to change in price
%change in quantity demanded/ % change in price
What is cross price elasticity of demand (XED) and how do you calculate it
Measures the responsiveness of demand for good x following a change of the price of related goods y
%change in quantity of good X / % change in price Y
What is income elasticity of demand (YED) and how do you calculate it
Measures the responsiveness of quantity demanded to change in income
%change in quantity demanded / %change in income
What are normal goods
As your income rises you get more, positive ped (0-1)
What are luxury goods
Not needed, you get more as your income rises, PED positives higher than 1
What are necessity goods
Needed, POS is less than 1, inelastic
