2 Flashcards
1
Q
Competitive market
A
- large No. of buyers & sellers
- low barriers to exit & entry
- good market information
2
Q
Demand + its different types
A
- Demand: The amount consumers are willing & able to purchase at a given price level
- Effective demand: backed up by an ability to pay
- Market demand: quantity of G or S that all the consumers in a market are willing and able to buy at different market prices
- Derived demand:
3
Q
Law of demand
A
- As a good’s price falls more is demanded
- Inverse relationship between price & quantity demanded
4
Q
Extension & contraction in demand
A
- Extension: quantity demanded of a good rises due to fall in price
- Contraction: quantity demanded falls due to rise in price
5
Q
Conditions of demand
A
- If any CoD change, the position of the D curve changes
- Price of substitute goods (goods in competing demand)
- Price of complimentary goods (goods in joint
demand) - Personal disposable income
- Tastes + preferences
- population size
6
Q
Normal & Inferior goods
A
- Normal: demand increases as income rises
- Inferior: demand decreases as income rises
7
Q
Exceptions to law of demand
A
- Speculative goods: purchase of an asset with the hope that it will become more valuable shortly
- Giffen goods: inferior goods that have no ready substitute or alternative (bread, rice, etc)
- Price as indicator of quality
- Veblen goods: luxury goods where demand increases as price increases
8
Q
Supply
A
- Market supply: total amount of an item producers are willing and able to sell at different prices, over a given period of time
- As a good price rises, more is supplied (profit maximising objective)
9
Q
Engel’s law
A
- as household income increases, the percentage of income that a household spends on food will decline
- as individuals’ incomes rise, the proportion of income spent on basic necessities decreases, while the proportion spent on luxury goods and services increases.
