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Economics 1.2.2
Economics- Edexcel 1.2.2
| Term | Definition |
|---|---|
| demand | the quantity of a product that consumers are willing and able to buy at a given price in each time |
| effective demand | when a desire to buy a product is backed up by having an ability to pay |
| derived demand | the demand for a factor of production used to produce another good or service |
| derived demand- steel | the demand for steel is linked to market demand for cars and construction of new buildings |
| derived demand- cloud computing infrastructure | growth in the cloud infrastructure service space is driven by increasing demand for information and data storage , e.g. the surge in demand for online video streaming and online gaming |
| derived demand- transport | a fall in demand for commuting during the pandemic led to a steep decline in the demand for public transport |
| derived demand- cobalt | 50% of all cobalt demand is for battery use such as for smartphones and electric vehicles |
| derived demand- logistics | falls in demand for new cars means a reduced demand for logistics services provided by companies such as DHL |
| logistics | the process of coordinating and moving resources from one location to storage at the desired destination |
| cloud computing | the practice of using a network of remote servers hosted on the internet to store, manage, and process data, rather than a local server or a personal computer |
| infrastructure | the basic physical systems of a business, region, or nation and often involves the production of public goods or production processes |
| normal good | a good that experiences an increase in it’s demand due to a rise in consumers' income |
| the basic law of demand | there is normally an inverse relationship between the price of a good and demand(as prices fall we see an expansion/extension of demand or as price rises there will be a contraction of demand) |
| ceteris paribus when drawing a demand curve | all factors are held constant except one- the price of the product itself |
| demand curve | shows the relationship between the price of an item and quantity demanded over a period of time |
| reason 1 why more is demanded as price falls | the income effect |
| the income effect | when the price of a good falls the consumer can maintain the same consumption for less spending, if it is a normal good then some of the increase in real income is used to buy more |
| reason 2 why more is demanded as price falls | the substitution effect |
| the substitution effect | when the price of a good falls, ceteris paribus, the product is now relatively cheaper than an alternative and some consumers will switch their spending form an alternative good or service |
| impact of the substitution effect | the more substitutes there are in a market + the lower the cost and inconvenience of switching = the bigger the substitution effect is likely to be |
| diminishing marginal utility and the demand curve | when more of a good is consumed additional utility from each extra unit consumed will fall- because consumers are assumed to be rational they won’t pay more for a good than the additional utility it provides, so price and quantity are inversely related |
| the demand curve and price falling | a person switches away from rival products towards the product, a persons willingness and ability to buy the product increases, a person’s opportunity cost of purchasing the product falls |
| inferior goods | a good whose demand drops when people's incomes rise |
| competitive demand | occurs when there are alternative services or products a customer can choose from |
| joint demand | when you need two goods because they work together to provide a benefit for the consumer, so two complementary goods and services are said to be in joint demand |
| peer pressure | influence from members of one's peer group |
| herd behaviour | a phenomenon in which individuals act collectively as part of a group, often making decisions as a group that they would not make as an individual |
| cost of credit | to the expenses charged to the borrower in a credit agreement |
| credit | a contractual agreement in which a borrower receives something of value immediately and agrees to pay for it later, usually with interest |
| a change in price causes: | a movement along the demand curve |
| increase in any other factor than price: | shift in the demand curve |
| cross-price elasticity of demand | the percentage change in the quantity demanded of a given product due to the percentage change in the price of another "related" product |
| elasticity of demand | how demand responds to a change in price or income |
| cross-price elasticity of demand for two complements | negative |
| composite demand | where a product has more than one demand, so an increase in demand for one product leads to a fall in supply of the other, e.g. milk used for cheese, yoghurt, butter and fertilisers |
| utility | measures the satisfaction we get from purchasing and consuming a product |
| total utility | the total satisfaction from a given level of consumption |
| marginal utility | the change in satisfaction from a given level of consumption |
| diminishing marginal utility | theory believes in the assumption of diminishing returns |
| assumption of diminishing returns | the marginal utility of extra units decline as more is consumed |
| rational choice theory | assumes that consumers always behave rationally in allocating their limited budget between different products to maximise total satisfaction from their purchases |
| behavioural economists | challenge the assumption of pure rationality in people’s everyday decisions |
| complement | goods and services that are used and bought together |
| composite demand | demand for a product that has more than one use |
| excess demand | the difference between the quantity supplied and the higher quantity demanded when price is set below the equilibrium price, resulting in queuing and an upward pressure on price |
| law of demand | inverse relationship between price and demand |
| off-peak demand | periods of time when demand for consumers is below normal levels, so firms often lower the price to stimulate demand |
| rational choice | involves the weighing up of costs and benefits and trying to maximise the surplus of benefits over costs |
| real disposable income | income adjusted fro inflation after direct taxes |
| seasonal demand | demand that varies according to the time of year |
| speculative demand | demand for financial assets where investors expect the price to rise in the future |
| Veblen good | as price increases people buy more of these goods to demonstrate their social status |
| willingness to pay | the maximum price a consumer is prepared to pay to obtain a product |
| effective demand | the level of demand that represents a real intention to purchase by people with the means to pay |
| notional demand | the aggregate quantity of goods which would be demanded if all the markets were in equilibrium |
| potential demand | where the consumer possesses the necessary purchasing power, but is not currently buying the product under consideration |
| law of demand | there is an inverse relationship between price and demand |
| ceteris paribus | ’all things being equal’ |
| complements | products which are bought and used together |
| the paradox of value | examines why goods that are not essential to life can command a much higher price than goods that are essential to life, e.g. water and diamonds |
| seasonality | fluctuations in output and sales related to the season of the year |
| factor market | a market where factors of production are bought and sold |
| composite demand | goods have more than one use |
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jessharris
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