Economics Terms A-Z
Also known as consumer choice, this term refers to the study of how and why people spend their money based on their preferences, and how they maximise the utility of their purchases while working within budget restraints. Some of the basic ideas of consumer theory state firstly that people try to make rational decisions which bring them the greatest utility; secondly, that people will always make multiple shopping trips, one not sufficing; and thirdly, that the more you use a product, the less you want it.
Consumer theory helps businesses predict which of their products is going to sell the best, and helps economists predict how the economy is going to change and develop. Businesses may use it to predict what the demand curve of a product is going to be, meaning they can figure out quantities. Consumption also generally contributes a lot to a country’s GDP, meaning economists use it as a part of their analysis of the economy.
Income Elasticity of Demand
Income elasticity of demand YEDA is a measure of how the quantity demanded of an item A qA in a market is affected by a change in income Y on the demand side of the market:
Trade barriers refer to the obstacles that are put in place by governments to limit free trade between national economies. Trade barriers are thus essentially interventions in markets that happen to operate internationally. Trade barriers include tariffs (taxes) on imports (and occasionally exports) and non-tariff barriers to trade such as import quotas, subsidies to domestic industry, embargoes on trade with particular countries (usually for geopolitical reasons), and licenses to import goods into the economy.
Price Elasticity of Supply
The price elasticity of supply for an item A ηA measures how the quantity of the item supplied qA changes in response to a change in the item’s price pA