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FDI: The abbreviation for Foreign Direct Investment, this is the acquisition of controlling interest in foreign firms and businesses from one country in another country. FDI can also take the form of constructing factories, structures and equipment (or any form of physical capital) in foreign soil. FDI does not include foreign investment into the stock markets (portfolio investment). Most economists consider foreign direct investment more useful than portfolio investment since this last one is generally regarded as temporal and can leave the foreign country at the first sign of trouble. FDI on the other hand, is considered more durable and with larger economic (potential) benefits.

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Lesson 12: Elasticity and Demand | Unit 5: Other Measures Page: 24 of 25

Topic: Cross Elasticity Of Demand <=PAGE BACK | PAGE NEXT=>

  • How responsive is my demand to this change in my other prices? To answer these questions, we need the cross elasticity of demand.

  • Cross elasticity of demand is the relative response of the demand for one good to changes in the price of another good.
  • Or stated in percentage terms: the cross elasticity of demand is the percentage change in demand for one good resulting from a percentage change in the price of another good.

  • The cross elasticity of demand is a handy numerical measure commonly used by economists to identify complement and substitute goods:

    • For a substitute good, cross elasticity is positive, meaning that an increase in the price of one good leads to an increase in demand for the other good.

    • For an complement good, cross elasticity is negative, meaning that an increase in the price of one good leads to a decrease in demand for the other good.

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MARGINAL UTILITY CURVE

A curve illustrating the relation between the marginal utility obtained from consuming an additional unit of good and the quantity of the good consumed. The negative slope of the marginal utility curve reflects the law of diminishing marginal utility. The marginal utility curve also can be used to derived the demand curve.

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Today, you are likely to spend a great deal of time going from convenience store to convenience store trying to buy either a T-shirt commemorating Thor Heyerdahl's Pacific crossing aboard the Kon-Tiki or a wall poster commemorating the 2000 Olympics. Be on the lookout for the last item on a shelf.
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More money is spent on gardening than on any other hobby.
"Always make a total effort, even when the odds are against you."

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