Economic Revision Notes
GDP - Gross Domestic Product is an estimate of the amount of economic activity in an economy and is produced by the Office of National Statistics.
Elasticity of demand (Ped) = % change in demand of good X / % change in price of good X • If the PED is greater than one, the good is price elastic. Demand is responsive to a change in price. If for example a 15% fall in price leads to a 30% increase in quantity demanded, the price elasticity = 2.0 • If the PED is less than one, the good is inelastic. Demand is not very responsive to changes in price. If for example a 20% increase in price leads to a 5% fall in quantity demanded, the price elasticity = 0.25 • If the PED is equal to one, the good has unit elasticity. The percentage change in quantity demanded is equal to the percentage change in price. Demand changes proportionately to a price change. • If the PED is equal to zero, the good is perfectly inelastic. A change in price will have no influence on quantity demanded. The demand curve for such a product will be vertical. • If the PED is infinity, the good is perfectly elastic. Any change in price will see quantity demanded fall to zero. This demand curve is associated with firms operating in perfectly competitive markets
Cross Price Elasticity - This measures the responsiveness of demand to a change in the price of a substitute or complement.
Income Elasticity - This measures the responsiveness of demand to a change in income.
Recession - An economy is in recession when a contraction in an economy (GDP) occurs over two consecutive quarters (six months).
2007-2010 Recession - Sub prime mortgages and excessive credit caused a global banking crisis when banks started to uncover significant losses from sub prime mortgages and credit back securities for which they could not afford and because of the globalization of banking, the whole world has exposure to the banking crisis.
Substitutes - These are rival products; for example, a
Elasticity of demand (Ped) = % change in demand of good X / % change in price of good X • If the PED is greater than one, the good is price elastic. Demand is responsive to a change in price. If for example a 15% fall in price leads to a 30% increase in quantity demanded, the price elasticity = 2.0 • If the PED is less than one, the good is inelastic. Demand is not very responsive to changes in price. If for example a 20% increase in price leads to a 5% fall in quantity demanded, the price elasticity = 0.25 • If the PED is equal to one, the good has unit elasticity. The percentage change in quantity demanded is equal to the percentage change in price. Demand changes proportionately to a price change. • If the PED is equal to zero, the good is perfectly inelastic. A change in price will have no influence on quantity demanded. The demand curve for such a product will be vertical. • If the PED is infinity, the good is perfectly elastic. Any change in price will see quantity demanded fall to zero. This demand curve is associated with firms operating in perfectly competitive markets
Cross Price Elasticity - This measures the responsiveness of demand to a change in the price of a substitute or complement.
Income Elasticity - This measures the responsiveness of demand to a change in income.
Recession - An economy is in recession when a contraction in an economy (GDP) occurs over two consecutive quarters (six months).
2007-2010 Recession - Sub prime mortgages and excessive credit caused a global banking crisis when banks started to uncover significant losses from sub prime mortgages and credit back securities for which they could not afford and because of the globalization of banking, the whole world has exposure to the banking crisis.
Substitutes - These are rival products; for example, a