Economics Unit 1 - The allocation of resources in a free market

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What is the definition of demand?
The amount that a consumer is willing and able to buy at a given price
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What are the factors that affect demand? (PASIFC)
Population, Advertising, Substitute, Income, Fashion, Compliment
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What causes a movement along the demand curve?
Change in price
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What is derived demand?
The demand for one good leads to the demand for another
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What is composite demand?
The demand for one good ha more than one use
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What is the definition of supply?
The amount that a producer is willing and able to provide at a given price
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What are the factors that affect supply? (PINTWC)
Productivity, Indirect tax, Number of firms, Technology, Weather, Cost of production
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What causes a movement along the supply curve?
A change in price
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What is joint supply?
The production of one good results in the production of another
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What is elasticity?
Measures the responsiveness of demand/supply to a change in something
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What is the equation for price elasticity of demand? (PED)
% change in Q.D/ % change in P
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What is the equation for income elasticity of demand? (YED)
% change in Q.D/ % change in Y
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How can you tell if a good is normal or inferior?
A normal good has a + YED. An inferior has a - YED
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What is the equation for cross price elasticity of demand? (XED)
% change in Q.D of good A/ % change in P of good B
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How can you tell if a good is a substitute or a compliment?
A substitute has a + XED. A compliment has a - XED.
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What is the equation for price elasticity of supply? (PES)
% change in Q.S/ % change in P
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Where does market equilibrium occur?
Supply = Demand
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If there is excess demand, does price sit above or below the equilibrium point?
Below
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If there is excess supply, does price sit above or below the equilibrium point?
Above
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What are the three main stages of the price mechanism? (SIR)
Signal, Incentive, Ration
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Other cards in this set

Card 2

Front

What are the factors that affect demand? (PASIFC)

Back

Population, Advertising, Substitute, Income, Fashion, Compliment

Card 3

Front

What causes a movement along the demand curve?

Back

Preview of the front of card 3

Card 4

Front

What is derived demand?

Back

Preview of the front of card 4

Card 5

Front

What is composite demand?

Back

Preview of the front of card 5
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