Booklet 1 - rational behaviour, PED, YED , XED ( key words )

market

a place where buyers and sellers meet to exchange goods and services. A market does not have to be a physical place.

CETERIS PARIBUS

a latin phrase for “other things being equal”"

compliment goods

goods whereby people consume them jointly. So that an increase in the price of one good causes a decrease in price for the other.

XED - cross elasticity of demand

a measure of the sensativity of quantity demanded of a good or service to a change in price of some other good or service

demand

the quantity of a good or service that consumers are willing and able to buy at any given price point in a given time period

diminishing marginal utility

where an individual gains less extra utility from consuming each additional unit of a good

Elasticity

a measure of the sensitivity of one variable to a change in another variable

YED - income elacisity of demand

a measure of the sensitivity of quantity demanded to a change in consumer incomes

inferior good

a good where the quantity demanded falls when income rises

law of demand

a law that states that there is an inverse relationship between quantity demanded and the price of a good or service

Luxury good

as income rises, consumers spend more proportionaley more income on the good. Income elasticity is greater than 1

normal good

one where the quantity demanded increases in response to an increase in consumer incomes. YED is between 0-1

PED formula

% change in quantity demanded / % change in price

PED

a measure of the sensitivity of quantity demanded to a change of the price of a good or service

relatively price elastic

QD changes by a proportionally greater percentage than the percentage change in price

relatively price inelastic

QD changes by a proportionely smaller percentave than a percentage change in price

substitute goods

goods whereby the consumers regard them as alternatives, so that the demand for one good is likely to rise if the price of the other one rises

demand curve

total quantity of sales made at different prices

total reveunue

the total money recieved from selling a good or service

unitary elastic

QD changes proportionally the same percentage as the change in price

utility

refers to the level of satisfaction a consumer recieves from the consumtion of a product or service

XED formula

% change in qd of good A / % change in price of good b

YED formula

% change in QD / % change in inome