ppfs and price elasticity (formulas) Flashcards
(55 cards)
what do ppfs show
Show the max amount of two goods/services an economy can prod.
why are ppfs useful
Basically problem is how to best allocate scarce resources so a ppfs shows options available when considering the prod of 2 types of goods/services
what are capital goods
goods that are used to produce other goods
what are consumer goods
goods bought directly by consumers
what is a trade off
When you have to choose between conflicting objectives as you can’t achieve all the objectives at the same time so you compromise and choose one
what is opportunity cost
the most desirable alternative given up as the result of a decision
how do producers use OC
Use it to look at the print gpforgone by not making an alternative product
how do consumers use OC
Use it to choose what to spend their income on
how does the gov use OC
Use it to look at the lost value to society from the policies they choose to implement
problems with OC
-not all alternatives are known
-some factors don’t have alternative uses
-there may be a lack of info on alternatives and their costs
-some factors are hard to switch their use
what does an outward shift in ppf show
economic growth
what does an inward shift on a ppf show
negative economic growth
what does cross price elasticty (XED) measure
The responsiveness of demand for good x following a change in price of good y
substitute goods are always
positive (if one gets more expensive people switch to the other so both price and demand increase)
complimentary goods are always
negative (the two goods are used together so if price for one inc, people will not buy either)
substitute goods are always in what kind of demand
Competitive demand so a fall in price of one product leads to a fall in demand for a substitute
complimentary goods are always in what kind of demand
joint demand (as one inc so does the other as they’re bought together)
a positive XED means that
the goods are close substitutes/compliments
a negative XED means that
the goods are weak substitutes/compliments
abbreviation for remembering positive and negative
PARTY SEASON NEAR CHRISTMAS (positive subs neg compliments)
what does IED measure
The responsiveness of quantity demanded given a change in income
formula for IED
Percentage in quantity demanded/percentage change in income
if IED>1 (positive)
it is a luxury good as demand increases more than income increases
if IED<1 (negative)
it is an inferior good as demand decreases as income increases
