Micro (CC2)

Demand

The quantity of a good or service that consumer are willing and able to purchase at a given price.

What is effective demand

Consumers must have the ability to buy (sufficient money)

Equilibrium price

The price t which a good/service is being offered for sale is being bought so the market is said to be clear

excess Demand

Where there is a unfulfilled demand at the market price - demand is greater than supply

Demand

Excess supply

Where there are unsold G/S at the market price - supply is greater than demand

Price mechanism

The mechanism through which price is determined in a free market system. The forces of demand and supply are needed to reach equilibrium

Law of Demand

AS price decreases demand will increase and vice versa

Extension of demand

A movement down the demand curve due to a fall in price

Contraction of Demand

A movement up the demand curve due to an increase in price

Substitutes

Goods that can be used in place of other goods

Complements

Goods that are usually bought together

Shift of the Demand curve

Where the whole demand urge sifts left or right due to a factor other than a change in price

Command or planned or centrally planned economy

An economic system where government , through a planning process, allocates resources in society

Economic System

A complex network of individuals, organisations and institutions and their social and legal interrelationships hitch allocates resouces

Free market, free enterprise, capitalist or market economy

An economic system that resolves the basic economic problems mainly through the market mechanism

Mixed economy

An economy where both the free market mechanism and the government planning process allocate significant proportions of total resources

Economic welfare

The level of well-being or prosperity or living standards of an individual or group of individuals such as a countr y

Neo-classical theory

A theory of economics which typically starts with the assumption that economic agents will maximise their benefits and act rationally. And which develops how resources will be allocated in markets and at what price through the forces of demand and supply, the margin is a key concept in neo-classical theory

utility or economic welfare

The satisfaction of benefit derived from consuming a good or a set of goods

Conditions of demand

Factors other than prices, such as income or the price of other goods ,which leaf to changed in demand and are associated with shifts in the demand curve

Consumer surplus

The difference between how much buyers are prepared to pay for a good and what they actually pay

Law of diminishing marginal utility

The value or utility that individual consumers gain from the last product consumed falls the reader the number consumed. The marginal utility of insuring the sixth reduction is lower than the second product

Elastic demand

Where the price elasticity of demand is greater than 1. The responsiveness of demand is proportionally greater than the change in price.

When is demand perfectly elastic

When the price elasticity of demand is infinity

Inelastic demand

Where the price elasticity of demand is less than 1. The responsiveness of demand is proportionally greater less than the change in price.

When is price perfectly inelastic

Demand is perfectly inelastic if price elasticity of demand is 0.

Price elasticity of demand

The proportionate response of changes in quantity demanded to a proportionate change in price

Formula for PED

P/Qd x Change in Qd / Change in Price

Unitary elasticity

Where the value of price elasticity of demand is 1, The responsiveness of demand is proportionally equal to the change in price

Total expenditure

Quantity bought x the average price of a product

Total Revenue

Quantity sold x the average price of a product

Cross elasticity of demand

Measure of the responsiveness of quantity demanded of one good to a change in price of another good.

Calculate XED

Change in QDa / Change in Pb

Income elasticity of demand

A measure of the responsiveness of quantity demanded to a change in income

how is YED calculated

% change in Qd / % change in income

Inferior good

A good where demand falls when income increases (negative income elasticity of demand )

Normal good

A good where demand falls increases when income increases (Positive income elasticity of demand )

Conditions of Supply

Factors other than prices, such as income or the price of other goods, which lead to changes in supply an

Long run

The period of time when all factor inputs can be varied but the state of technology remains constant

Price elasticity of supply

A measure of the responsiveness of Qs to a change in price.

Calculate PES

% change in Qs/ % change in price

Producer surplus

The difference between the racket price which firms receive and the price at which they are prepared to supply

Short run

The period of time when at least one factor input to the productions process can be varied

Supply

The quantity of goods that suppliers are willing to sell at any given price over a period of time

Incentive function

When changes in price encourage buyers and sellers to change the quantity they buy and sell. A rise in price encourages buys to purchase less and sellers to produce more etc.

Rationing function

When changes in price lead to more or less being produced, so increasing or limiting the quantity demanded by buyers

Signalling function

When changes in price give information to buyers and sellers which influence their decisions to buy and sell

Ad valorem tax

Tax levied as a percentage of the value of the good

Incidence of tax

The tax burden on the taxpayer

Specific or unit tax

Tax levied on volume

Subsidy

A grant given which lowers the price of a good, usually designed to encourage production or sonsumption of a good