T1.2

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What are the underlying assumptions of rational economic decision making
1. Consumers aim to maximise utility 2. Firms aim to maximise profits
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Explain the assumption that consumers aim to maximise utility
.
2 of 29
Explain the distinction between movements along a demand curve and shifts of a demand curve
.
3 of 29
List factors that may cause a shift in the demand curve (the conditions of demand)
.
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Explain the concept of diminishing marginal utility
.
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Explain how the concept of diminishing marginal utility influences the shape of the demand curve
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Explain what is meant by price elasticity of demand
Price elasticity of demand is the responsiveness of demand for a good due to a change in its price
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Give the formula to calculate price elasticity of demand
%ΔQD ÷ %ΔP
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Explain what is meant by a unitary elasticity of demand
The demand curve is unitary elastic, if the percentage change in demand is the same as the percentage change in price. PED =1
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Explain what is meant by a perfectly elastic price elasticity of demand
.
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Explain what is meant by a perfectly inelastic price elasticity of demand
.
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Explain what is meant by a relative elastic price elasticity of demand
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Explain what is meant by a relatively inelastic price elasticity of demand
.
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Explain what is meant by income elasticity of demand
Income elasticity is the responsiveness of demand for a good due to a change in income
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Give the formula for income elasticity of demand
YED = %ΔQD ÷ %ΔY
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Explain what is meant by an inferior good
.
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Explain what is meant by a normal good
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Explain what is meant by a luxery good
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Explain what is meant by relatively elastic price elasticity of demand
.
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Explain what is meant by relatively inelastic price elasticity of demand
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Explain what is meant by cross elasticity of demand
Cross elasticity is the responsiveness in demand for good B due to a change in price of good A
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Give the formula to calculate cross elasticity of demand
XED = %ΔQD good B ÷ %ΔP good A.
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Explain what is meant by a substitues
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Explain what is meant by a complimentary good
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Explain what is meant by an unrelated good
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List factos that influence PED
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26 of 29
List factors that influences YED
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List factors that influences XED
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Explain the assumnption that firms aim to maximise profit
.
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Other cards in this set

Card 2

Front

Explain the assumption that consumers aim to maximise utility

Back

.

Card 3

Front

Explain the distinction between movements along a demand curve and shifts of a demand curve

Back

Preview of the front of card 3

Card 4

Front

List factors that may cause a shift in the demand curve (the conditions of demand)

Back

Preview of the front of card 4

Card 5

Front

Explain the concept of diminishing marginal utility

Back

Preview of the front of card 5
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