Economics

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  • Created by: bethany
  • Created on: 13-01-13 14:38
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  • WHAT DETERMINES THE DEMAND FOR A GOOD OR SERVICE IN A MARKET
    • DEMAND  CURVE
      • DEF: Shows the amount of a good that consumers are willing to but at various prices
      • Demand curve slopes downwards for two reasons
        • Substitution effect: when price falls it becomes cheaper than substitutes
        • Income effect: when price falls, real income of consumer may rise
      • movement along the demand curve: ONLY WHEN THERE IS A CHANGE IN PRICE
      • Shifts in demand: Tastes, Complementary goods, Substitute goods, income, changes in population, changes in legislation, Advertising
    • Price elasticity of demand
      • % change in quantity demanded / % change in price
        • Price elastic (greater than one)
          • BAD: raise price = fall in revenue
        • Price inelastic (between zero and minus one)
          • GOOD: raise in price = raise in revenue
      • Determinants of price elasticity of demand
        • Availability of substitutes (closer=higher elasticity of demand), time, Necessities (lower elasticity than luxuries)
    • Income Elasticity of demand
      • % change in quantity demanded / % change in income
        • Normal good (most common) POSITIVE Rise in income = rise in quantity demanded
    • Cross price elasticity of demand
      • % change in quantity demanded of good A / % change in price of good B
        • Substitutes POSITIVE a rise in the price of coffee causes a rise in demand for tea
        • Complementary NEGATIVE fall in the price of tennis rackets may cause an increase in demand for tennis balls

Comments

John Davidson

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you fockin what

Luke Cox

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lol lol lol i'm a farmer

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