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41 Cards in this Set
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What is the definition of demand |
The quantity of goods and services that consumers are willing and able to buy at a given price |
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What is the definition of supply |
The quantity of goods and services that suppliers are able and willing to supply at a given price. |
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What is the law of demand |
There is an inverse relationship between demand and price. As price rises, demand decreases and as price decreases, demand rises - of course the extent of the change in demand depends on the elasticity of the product. |
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Draw the graph for demand |
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Using the demand curve, explain how the income and substitution effects explain that when prices go up, demand decreases and vice versa. |
- Income effect As the prices of a good or service increases, consumers have less purchasing power because they are less able to buy goods and services at the new price. Therefore, there is a contraction of demand from Q to Q1. As prices decrease, there is an increase in consumer purchasing power as they as able to guy more of the good and service for the new price. Therefore, there is an extension in demand from Q to Q3. - Subsitution effect As the prices of goods and services in a firm increase, other goods and serivises become more price competitive, so consumption shifts to them instead. Therefore, demand for the goods and services of the firm in question will contract. As the prices of goods and services on a firm decrease, other goods and services become less price competitive, so consumption will increase, therefore demand will extend. As increase, consumers have more disposable income so can afford more expensive goods and services. Spending increases on |
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PASIFIC is an acronym used to name the factors that cause a shift in demand. What does PASIFIC stand for? |
Population Advertising Subsidies prices Interest rates Fashion tastes Income - normal goods and inferior goods Complements prices |
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The PACIFIC are a non price factors that shift demand. Draw a diagram to show a shift in demand. |
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What is the definition of supply |
The quantity of goods and services that producers are willing and able to supply at a given price. |
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What is the law of supply |
The law of supply states that there is a direct relationship between price and quantity. As price increases, demand increases and as price decreases, demand decreases. |
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Draw the graph for supply. |
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What is the definition of a market? |
A market is a place where buyers meet suppliers to exchange goods or services |
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What is an equilibrium? |
An equilibrium is the point where demand meets supply in a market. |
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Draw the graph which shows that there is disequilibrium due to excess supply. |
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Draw the graph which shows that there is disequilibrium due to excess demand. |
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Complete the sentence: In a free market economy..... Will not last because the market will ..... |
. Disequilibrium . Correct itself |
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What acronym tells you that tools that a FM economy uses to correct itself? |
(SIRI WITH AN A) S - SIGNALS I - INCENTIVE R - RATIONS SUPPLY AND DEMAND A - EFFICIENT ALLOCATION OF RESOURCES |
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Explain how SIRA brings the market to an equillibrium if there is excess demand. 8 marks - all AO1 marks - use a diagram |
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Explain how SIRA brings the market to an equillibrium if there is excess supply. |
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Explain, using a diagram, how the price mechanism perfectly allocates scarce resources when there is an outward shift in demand. |
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Explain, using a diagram, how the price mechanism perfectly allocates scarce resources when there is an inward shift in demand. 8 marks |
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Explain, using a diagram, how the price mechanism perfectly allocates scarce resources when there is an inward shift in supply. 8 marks |
DO IT |
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Explain, using a diagram, how the price mechanism perfectly allocates scarce resources when there is an outward shift in supply. 8 marks |
DO IT |
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What is the definition of derived demand |
Derived demand is when demand for a good/service comes from the demand of something else. E.g. the demand for aluminium is derived from the demand for cars. |
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Define price elasticity of demand |
Price elasticity of demand is the responsiveness of quantity demanded to a change in price. |
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What is the equation of PED? What is the equation of percentage change? |
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If price is >1 then quantity demanded is price... |
Elastic. The percentage change in quantity demanded is perportionatly greater than the percentage change in price. |
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When PED is <1 then the good or service is price... |
Inelastic. The percentge change in price is perpotionatly greater than the percentage change in demand. |
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What is the acronym SPLAT used for? |
The acronym SPLAT is used to name all the factors that explain , when a good or serivice is price elastic. |
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What does SPLAT stand for? |
Subsitutes Percentage of income Luxury or necessity Addictive or habit forming Time period |
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What is the equation for total revenue |
Total revenue = price × quantity |
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What is the definition of price elasticoty of supply |
Price elasticity of supply is the responsiveness sof supply to a given change in price. |
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What are the determines of change in PES |
Production lag Stock Spare capacity Subsitutibility of factors of production Time |
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ECONPLUSDAL - INCOME ELASTICITY OF DEMAND |
Go over |
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What is the definition of income elasticity of demand |
Income elasticity of demad (YED) measures the responsivness of quantity demanded to a change in income. |
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What is the formula for income elasticity of demand (YED) |
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Draw the graph for income elasticity of inferior goods |
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Draw the graph for income elasticity of normal goods |
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READ THIS |
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PINTSWC is used to explain factors that cause a shift in supply. What does PINTSWC stand for? |
Production Interest rates No of firms Technology Subsidies Weather Costs of production |
