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21 Cards in this Set
- Front
- Back
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Define complementary goods |
Goods that are in joint demand. The use of one involves the use of the other. |
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Define substitute goods |
Goods that satisfy the same need and can be considered alternatives to each other. |
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Give 3 examples of types of goods that are exceptions to the Law of Demand. |
• Giffen goods • Snob goods • Goods affected by consumer expectation |
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Define giffen goods |
A good that is necessary for which quantity demanded increases if price rises and demand falls if price falls. |
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Define snob goods |
Goods that are attractive to consumers because they are expensive. |
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Define normal goods and inferior goods. |
Normal goods have a positive income effect. A rise in income causes more to be demanded and vice-versa. Inferior goods are have a negative income effect. |
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Define money income |
A person's earnings expressed in money terms over a period of time. |
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Define real income |
The purchasing power of a person's money income over a period of time. |
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State the Law of Demand |
As price rises, the quantity demanded for the product falls and as price falls, quantity demanded rises. |
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Define individual/market (aggregate) demand schedule |
A table showing the different quantities of a good a consumer/all consumers in the market are willing to buy at each price. |
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Define individual/market (aggregate) demand curve |
A graph, drawn from the demand schedule, showing different quantities of a good, a consumer/all consumers in the market are prepared to buy at each price. |
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Outline 5 factors affecting the demand of a good |
•Px-> the price of the good itself •Pc+x-> the price of other goods •Y-> the consumer's level of income •t-> consumer taste •E-> consumer expectation |
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Define substitution effect |
When the price of a good falls, it becomes cheaper relative to other goods and the consumer is more likely to purchase it. |
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Define income effect |
When the price of a good falls, the real income of the consumer increases, allowing more of the good to be increased. |
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Define Law of Supply |
As price rises, quantity supplied rises and as price falls, quantity supplied falls. |
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Define capacity constraint |
A limit to the quantity of a good that a firm is willing to supply at each price. |
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Outline 5 factors affecting quantity supplied of a good |
•Px-> price of the good itself •Pr-> price of related goods •C-> costs of producing the good •T-> state of technology •U-> unforeseen factors |
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Define a luxury good |
A normal good with an income elasticity of demand YED>1 |
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Define cross elasticity of demand |
The responsiveness of one good's demand to a change in the price of another good. |
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Factors affecting price elasticity of demand |
•Close substitutes available? •Is the good expensive? •Is the product durable? •Is brand loyalty important? •Cheaper than goods in joint demand? SEDLJ |
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Factors affecting price elasticity of supply |
•Is the firm near full capacity? •Mobility of factors of production •Time period under consideration •Nature of the product (perishable) FMTP |
