1utility
the level of satisfaction that a consumer receives from the consumption of a good or service
2consumers act rationally by aiming to maximise their
utility
3firms act rationally by aiming to maximise their
profits
4demand
the quantity of a good or service that a consumer is willing to and able to buy at given prices over a certain period of time
56 causes for a shift in the demand curve
population size or age, incterest rates, real income, advertising, taste and perferences, substitutes and complements
6total utility
the total satisfaction gained from the total amount of product consumed
7marginal utility
the change in total utility from consuming a unit of product
8law of diminishing marginal utility
as consumption of a product is increased, the consumer’s utility increases but at a decreasing rate
9price elasticity of demand (PED)
a measure of the responsiveness of quantity demanded to a change in its price
10unitary elastic graph
rectangular hyperbola
11perfectly elastic in demand graph
horizontal
12perfectly inelastic in demand graph
vertical
135 factos influencing price elasticity of demand
availability of substitutes, proportion of income spent on a product, nature of the product, durability of the product, breadth of definition of a product
14total revenue =
price x quantity sold
15cross elasticity of demand (XED)
measure of the responsiveness of quantity demanded of product Y to a change in price of product X
16positive XED
subsititutes
17negative XED
complements
19income elasticity of demand (YED)
measure of the responsiveness of quantity demanded to a change in real income
20positive YED
normal good
21negative YED
inferior good
22supply
the quantity that a producer is willing to and able to sell at given prices over a certain period of time
236 causes of a shift in supply
cost of production, productivity of the workforce, indirect taxes, subsidies, technology, discovery of new reserves of raw materials
24price elasticity of supply (PES)
a measure of the responsiveness of quantity supplied to a change in its price
25perfectly elastic in supply
horizontal
26perfectly inelastic in supply
vertical
27short run growth
growth when at least one of the factors of production is fixed
28long run growth
growth when all the factors of production are variable
294 factors influencing the price elasticity of supply
time, stocks, spare capacity, availability and cost of switching resources from one use to another
30equilibrium
when the quantity sold is equal to the quantity demanded
31excess supply
when the quantity supplied is greater than the quanity demanded
32excess demand
when the quantity demanded is greater than the quantity supplied
33price above the equilibrium causes
excess supply
34price below the equilibrium causes
excess demand
353 price mechanisms
rationing, incentive, signalling
36rationing fucntion affects
demand
37incentive function affects
supply
38consumer surplus
the difference between the price a consumer is willing to pay and the price they actually pay
39producer surplus
the difference between the price a producer is willing to sell at and the price they actually sell at
40area between the supply curve and the market price
producer surplus
41area between the demand curve and the market price
consumer surplus
422 factors affecting consumers surplus
gradient of the demand curve, shift in the demand curve
432 factors affecting producer surplus
gradient of the supply curve, shift in the supply curve
44indirect tax
tax on expenditure
45example of indirect tax
VAT
462 types of indirect taxes
specific, ad valorem
47specific tax
a set amount of tax per unit of good or service
48ad valorem tax
a percentage of the price of a good or service
49subsidy
grant from the governement that has the effect of reducing costs of production and increasing supply
503 reasons why consumers may not behave rationally
consideration of the influence of other people's behaviour, the importance of habitual behaviour, consumer weakness at computation