Summary: Advanced Economic Aspects Of The Culture Industries

Read the summary and the most important questions on Advanced Economic Aspects of the Culture Industries

• 2 Week 2: Cultural Products, Consumer Behaviour and Demand

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• What are opportunity costs?

  • The value of possibilites lost when a choice is made.
  • E.g., With a budget of 20 euros, if you decide to purchase two cups of coffee priced at €5 each, you will only have enough remaining to buy one pizza valued at €10.
  • I.e., when you buy the two cups of coffee you loose the opportunity to buy an additional pizza.

• What is an indifference curve?

  • A curve that reflects all combinations of two goods that represent the same amount of utility.
    
  • E.g., you don't really care (i.e., you are indifferent) wether you have 8 glasses of water and 2 of cola or 6 glasses of water and 3 glasses of cola. As long as you have at least 1 litre of water and 1 glass of cola a day.

• What is an indifference map?

  • A graph showing all indifference curves.
    
  • I.e., you can have many indifference curves. Each curve represents an equal amount of utility. One curve could reflect that you are indifferent to 3 pizzas and 4 cups of coffee or 2 pizzas and 6 cups of coffee. Another indifference curve could reflect that you are indifferent to 6 pizzas and 8 cups of coffee or 5 pizzas and 11 cups of coffee.

• What do we mean with MRS and where is it used for?

  • MRS stand for Marginal Rate of Substitution.
    
  • It is the slope of an indifference curve.
  • It measures the rate at which you are willing to forego an  amount of good A in order to get more of good B and remain indifferent.

• When you map your budget line and indifference curves into one graph you can choose an affordable option that gives you the most utility. Where will you find this point?

  • At the place where there is a point of tangency between the budget constraint and an indifference curve.
    
  • So NOT where an indifference curves intersects the budget constraint.

• What is meant with the term constraint optimalization?

  When you get the highest utility given your budget constraint.

• What is the law of diminishing marginal utility?

  The more of a good is consumed, the more the additional utility gained from consuming one more of the good will decrease.

• 2.1.1 Topic 4 Part 1: Elasticity

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• When do we speak of an elasticity of demand and when of inelasticity of demand?

  • Elasticity of demand:
  • When an increase in price reduces the quantity of demand a lot.
  • Inelasticity of demand:
  • When the quantity of demand reduces only a little whenever there is a price increase.

• In Neoclassical Economic theory, which five factors determine wether a demand curve is elastic?

  • Availability of Substitutes.
    
  • More substitutes, more elastic.
  • Time horizon.
  • The longer the period consumers have to adjust to a price change, the higher the elasticity.

  • Product Category.
  • Specific (Coca-Cola) or broad (sugar).
  • More specific, more elastic.
  • Necessities vs luxuries.
  • Luxury goods are more elastic.
  • Purchase size.
  • Relative to consumer's budget.
  • Bigger purchase size, more elastic (10cents more or less on a chocolate bar doesn't interest the consumer as much as thousands of euro's on a car).

• What is the formula to calculate elasticity of demand?

  See formula.