is determined based on their sensitivity and response to changes in price.
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The law of demand
Stresses that consumers will buy more of a product in the case when price falls and demand will decrease if the price decreases
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Cross Elasticity of Demand (CPED)
This measures how the changes in price of a certain good can affect the quantity demanded of another product
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Substitute goods
are those which can be exchanged with one another.
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Complementary goods
are those with complement each other
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Income Elasticity of Demand
Another factor which affects the purchasing activity of consumers is income. Consumers have to take into consideration their own budget before purchasing goods and services
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Price Elasticity of Supply (PES)
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The price elasticity of supply takes into the consideration how a change in price affects the quantity supplied.
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**Producer surplus**
is the difference between the lowest price a producer would sell a product and the actual price received
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**Consumer surplus**
is the difference between the highest price a consumer would pay for a product minus the actual price paid.
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A **price ceiling**
is a maximum legal price that can be charged for a product or service.
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A **price Floor**
is a minimum legal that can be charged for a product or service
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**Deadweight loss**
is the loss of total surplus when a market fails to reach a competitive equilibrium
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tariff
is a tax on imports or exports, and a quota has a similar effect on trade that sets a limit on the quantity of goods imported and exported.
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negative output
means that the goods are complementary, while a Positive output means that the goods are substitutes.
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necessary good
If there is a(n) ________ without any substitutes, a consumer is more likely to buy the same quantity as the price changes.
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Consumer choice theory
includes many factors, which are necessary to help them make choice accordingly.
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total surplus
When a market fails to maximise ________, a deadweight loss is created.
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normal goods
there is a direct relationship between an individuals income and the quantity demanded.
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inferior goods
an increase in income leads to a decrease in quantity demanded, as they appear to have an inverse relationship.
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Consumer surplus
can be located below the demand curve, above price, and left of quantity.
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Producer surplus
is the difference between the lowest price a producer would sell a product and the actual price received.
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total revenue
If the price increases and ________ decreases, elasticity of demand is relatively elastic.
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tariff
After the ________, the quantity of imports decreases, and areas where consumer surplus before trade are now tax revenue from the ________ and deadweight loss.
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Elasticity
is the measure of how consumers respond to changes in price.
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Total revenue
is the amount of money received from sales of a product.
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consumer
When ________ and producer surpluses are maximised, the economy will experience efficiency and therefore lead to equity.
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total revenue
If price increases and ________ increases, elasticity of demand is relatively inelastic.
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Total Utility
the total utility amount of satisfaction a person receives from the consumption of a good or service
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Marginal Utility
extra amount of satisfaction or utility from consuming one more unit of a good or service