1.3 Flashcards
(27 cards)
define demand
the quantity consumers are willing to buy at current price
How do interest rates influence demand?
Interest rates affect spending
Interest rate high = less borrowing = less spending
what is individual demand
demand of and individual or firm
what is market demand
the sum of all individual demand in market
how do prices affect supply and demand
prices cause MOVEMENTS in the supply and demand curve
what are the factors causing shifts in supply and demand curve ( PIRATES)
Population
Income
Related goods
Advertising
Tastes and fashions
Expectations
Seasons
what is the snob affect
as price increases so does demand as consumers pay for the brand name
what is a substitute good
an alternative to a product
what is complementary good and link to demand
another product bought alongside another product
as price increases of good A demand for good B falls
what are producer objectives
profit maximising
profit satisficing
sales maximization
growth
what is supply
the amount a firm is willing to sell to consumers at given price
factors causing a shift in supply ( PINTSWC )
productivity
indirect taxes
number of firms
technologies
subsidies
weather
cost of production
what are external shocks
unexpected events that are
outside of the businesses control but have a direct
impact on the level of supply
3 reasons why supply curve is upwards sloping
- if price increases firms will supply more
- high prices encourage new entrants
- larger output increases cost , which are passed onto consumers
how will exchnage rates affect level of supply
a decrease in interest cost boost cost of imported raw materials thus creating high productions cost causing a shift in the left
define market equilibrium
the price which supply and demand meet and has no tendency to change
what is excess supply
occurs when the quantity of a good or service that producers are willing to supply is greater than the quantity that consumers want to buy at the current market price
what is excess demand
occurs when the quantity of a good or service demanded at a given price is greater than the quantity supplied.
what are the cons of supply and demand curve
- only show certain markets
- assumes price increases causes more supply
- assume perfect information
- assumes perfect competition
what are the 3 types of price mechanisms
- rationing
- incentives
- signalling
Explain how rationing works in the price mechanism
Resources are finite so not everyone can have everything they want so prices are bid up and so only those that can afford it can have it
Explain how signalling works in the price mechanism
Prices determine where and how resources should be allocated. If prices increase, it signals that demand is high
what is the difference between mass and niche markets
a mass market is a larger target market whereas niche is a smaller more specific market
why are niche markets better at allocating resources
closer to consumers so have better idea of who needs specific goods
