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AICE Econ AS Unit 2

Review of terms and concepts from Unit 2 of AICE Econ AS Level

TermDefinition
Market A place where buyers and sellers come together.
Price Mechanism The way that market forces decide who gets what in an economy.
Demand A measuremnt of consumers ability and willingness to purchase a good or service at a given price.
Supply A measurement of producers willingness to produce a good or service at a given price.
Ceteris Paribus Latin for "All other things being equal".
The components that change demand are... Changes in consumer taste, prices of related goods, income, the polulation and consumer expectations about the future. (TRIPE)
The components that change supply are... any factor that affects how profitable a good or service is to produce.
A change in demand is shown as a... Movement of the demand curve.
A change in supply is shown as a... Movement of the supply curve.
A change in quantity demanded is shown as... A movement along the demand curve.
A change in quantity supplied is shown as... A movement along the supply curve.
A good with a posative relationship between income and consumption. A normal good
A good that is demanded more as incomes fall. An inferior good.
Complimentary Good A good whos demand is tied positively to another good. (Example: Skis and ski boots)
Substitute Good A good whos demand relates negatively to anther good. (Example: Skis and Snowboards)
Composite Demand When products are used for more than one purpose and the use for one purpose decreases its availability for another purpose.
Elastic Good A good where a small change in price will lead to a relatively large change in quantity demanded.
Inelastic Good A good where a large change in price will lead to a relatively small change in quantity demanded.
Price Elasticity of Demand (PED) % change in quantity demanded / % change in price
Unitary Elasticity PED = 1. When price increases quantity demanded decreases by the exact same amount. It also works in reverse.
Income Elasticity of Demand (YED) % change in quantity demanded/ % change in income.
Cross Elasticity of Demand (XED) % change in quantity demanded of product A/ % change in the price of product B
Elasicity of Demand > 1 Is Elastic
Elasticty of Demand < 1 Is Inelastic
Cross Elasticity of Demand (XED) that is negative indicates that the goods are... Compliments
Cross Elasticity of Demand (XED) that is positive indicates that the goods are... Substitutes
Cross Elasticity of Demand (XED) or zero indicates that the goods are... Unrelated
Consumer Surplus When some consumers are willing to pay greater than the current market price for a good or service.
Price Elasticity of Supply % change in quantity supplied/ % change in price
Total Revenue The total amount of money a producer brings in. It is counted before expenses are deducted.
Created by: M.Brock
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