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Contents we've seen this year :pencil2:, PED values, :arrow_right:, :,…
Contents we've seen this year
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Economic system
Means by which choices are made in an economy
Free market economics
Property is privately owned.
Resources are allocated by means of the price mechanism
Government’s role ---> minimal
Planned economics
Government ---> most of the decisions
Property is largely state owned
Private sector’s role ---> minimal
Mixed economics
Private and public sectors---> key role
Resources ----> allocated using the price mechanism and state planning.
Number of problems ----> when central planning in an economy is reduced
Basic Economic Ideas
FACTORS OF PRODUCTION
Land
Labour
Capital
Enterprise
SCARCITY -->
wants
and
needs
are in excess of the resources available
Money
Medium of exchange
Unit of account
Standard for deferred payments
Store of wealth
Production possibility curve
Representation of maximum level output of an economy when using resources is full
Straight line in PPC = productive
Curve line in PPC =/ productive
shifts in PPC --> change in amount
Supply
What producers can sell
Factors of influence
Supply curve
Demand
Demand curve
What consumers ask for/want
Factors of influence
Market equilibrium
When equilibrium is reached, market clears
Income Elasticity of Demand
Measures the change in the quantity demanded in response to a change in in income
FORMULA:
YED Values
Price Elasticity of Demand
Measures the responsiveness of demand after a change in a product's own price
FORMULA:
PED will always be negative ---> since changes in price and quantity usually move in opposite directions
In linear demand curve ---> PED values decrease
Factors affecting PED
Availability of substitutes
Cost of switching suppliers
Breadth of definition
Degree of necessity
Time frame when making a choice
Brand loyalty
Percentage of income spent
Habitual demand
Cross Price Elasticity of Demand
Measures the change in the quantity demanded of one good in response to the change in the price of another good
FORMULA:
Substitutes: products in competitive demand
Complements: products in joint demand
Ema von Rennenkampff, Victoria Suarez, Toia Bosch
PED values
PED = -∞ : Demand perfectly elastic
-∞ < PED < -1: Demand relatively elastic
PED = -1: Demand unitary elastic
-1 < PED < 0: Demand relatively inelastic
PED = 0: Demand perfectly inelastic
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Inferior: <0
Normal: 0 I
Luxury: >I
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Value of XED for 2 substitutes ---> POSITIVE
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Value of XED for 2 complements ---> NEGATIVE
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