# EC1 Part 2

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• Created by: Naana
• Created on: 16-04-15 16:47
what is a normal good?
Goods for which an increase in income leads to an increase in demand
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What is an inferior good?
Goods for which an increase in income leads to a fall in demand
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What are the PED results for inelastic, unitary and elastic demand?
Inelastic=0 to -0.9, Unitary= -1, Elastic= -1.1 to -2
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What are the YED results for normal and inferior goods?
Normal= positive, Inferior= negative
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What are the PES results for inelastic, unitary and elastic supply?
Inelastic= 0 to 0.9, Unitary= 1, Elastic= 1.1 to 2
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What are the XED results are for complement and substitute goods?
Complements= negative, No relation= 0, Substitutes= positive
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If a product is elastic, how can a firm increase its revenue?
By reducing the price of the product. If the firm reduces the price then the quantity demanded will increase by more than the change in price, so the firm's revenue will increase
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If a product is inelastic, how can a firm increase its revenue?
By increasing the price of the product. If a firm raises the price then the quantity demanded will fall by less than the increase in the price, so they will gain larger revenue
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What is total revenue and what is its formula?
This is the total income from selling products. Rev= price x quantity
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Give 3 reasons why merit goods would be under consumed in a free market
Consumers would not be aware of the benefits of the good due to information failure, some merit goods are expensive so not everyone can afford it, for some merit goods there is a delay between paying for the good and receiving its benefits
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Give 3 reasons why demerit goods would be over consumed in a free market
Consumers would be unaware of the damage caused by these goods- information failure, most demerit goods are cheap to make and buy, there is usually no delay between paying for the good and receiving its benefits
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What measures does the government use to increase the provisions of merit goods?
Directly funding the good so that it is free of charge, subsidising the good to reduce the price, using laws to make people buy the good, education campaigns which promotes consumption and raises awareness of the benefits
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How is specific and ad valorem tax demonstrated on a graph?
Specific results in a parallel shift in the supply curve to the left, ad valorem results in a divergent shift in the supply curve to the left
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What measures does the government use to decrease the provisions of demerit goods?
Taxing the good, using laws to stop people buying the good, education campaigns to reduce consumption and raises awareness of the harmfulness of the good
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What is a subsidy?
A payment from the government to a producer to encourage the production of the good or service (supply increases)
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## Other cards in this set

### Card 2

#### Front

What is an inferior good?

#### Back

Goods for which an increase in income leads to a fall in demand

### Card 3

#### Front

What are the PED results for inelastic, unitary and elastic demand?

### Card 4

#### Front

What are the YED results for normal and inferior goods?

### Card 5

#### Front

What are the PES results for inelastic, unitary and elastic supply?