LU3 The public sector

What is Elasticity in economics?

Elasticity measures how much the quantity demanded or supplied of a good responds to changes in price.

Define Price Elasticity of Demand.

Price Elasticity of Demand is the responsiveness of quantity demanded to a change in the price of a good.

What is Income Elasticity of Demand?

Income Elasticity of Demand measures how the quantity demanded of a good changes as consumer income changes.

Explain Cross Elasticity of Demand.

Cross Elasticity of Demand measures the responsiveness of the quantity demanded for one good when the price of another good changes.

What are Inferior Goods?

Inferior goods are those for which demand increases as consumer income decreases.

Define Normal Goods.

Normal goods are those for which demand increases as consumer income increases.

What is a Substitute Good?

Substitute goods are products that can replace each other; an increase in the price of one increases the demand for the other.

Explain Complementary Goods.

Complementary goods are products that are consumed together; an increase in the price of one decreases the demand for the other.

What is the Law of Demand?

The Law of Demand states that, all else equal, as the price of a good increases, the quantity demanded decreases.

What is the Law of Supply?

The Law of Supply states that, all else equal, as the price of a good increases, the quantity supplied increases.

Define Market Equilibrium.

Market Equilibrium occurs when the quantity demanded equals the quantity supplied at a particular price.

What is Consumer Surplus?

Consumer Surplus is the difference between what consumers are willing to pay and what they actually pay.

Define Producer Surplus.

Producer Surplus is the difference between what producers are willing to accept for a good and what they actually receive.

Explain Deadweight Loss.

Deadweight Loss is a loss of economic efficiency that occurs when equilibrium for a good or service is not achieved.

What are Price Ceilings?

Price Ceilings are legal maximum prices that can be charged for a good or service.

Define Price Floors.

Price Floors are legal minimum prices that must be paid for a good or service.

What is Marginal Cost?

Marginal Cost is the cost of producing one more unit of a good.

Explain Average Total Cost.

Average Total Cost is the total cost divided by the number of goods produced.

Define Economies of Scale.

Economies of Scale are the cost advantages that enterprises obtain due to their scale of operation.

What is Market Structure?

Market Structure refers to the number and relative strength of buyers and sellers in a market, influencing the competition.

Define Monopoly.

A Monopoly is a market structure where a single seller controls the entire market for a good or service.