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Flashcards in 3. Markets Deck (13):
1

market

a situation where buyers and sellers are in contact for purposes of exchange.
Role: to allow the interests of buyers (demand) to interact with the interests of sellers (supply) in order to achieve equilibrium.

2

centalised market

a financial market structure that consists of having all orders routed to one central exchange w/ no competing market (e.g. syd fish markets)

3

decentralised market

a market structure that consists of a network of various technical devices that enable investors to create a marketplace without a centralised location (e.g. stock market, foreign exchange)

4

demand

the quantity of a good/ service that consumers are willing to and able to buy

5

demand curve

a graphical representation of the quantities of a good/service that consumers are willing and able to buy along the range of possible prices

6

law of demand

the quantity demanded of a good or service is inversely related to its price

7

factors influencing demand

1. Own price (moves along graph)
2. Income
3. Prices of substitutes and compliments
4. Tastes
5. Expected future prices
6. Population
7. Distribution of income

8

Ceteris paribus:

holding other things constant" and is usually rendered in English as "all other things being equal".

9

Price elasticity of demand

Sensitivity of the quantity demanded to a change in its price.
PRICE ELASTICITY OF DEMAND = %CHANGE IN QUANTITY (ABSOLUTE) / % CHANGE IN PRICE

10

Elastic demand:

strong response to a change in price (people consume much less when prices rise)

E > 1 Elastic

11

Inelastic demand:

weak response to a change in price e.g. heart medication, toilet paper, petrol
E

12

Unit elasticity

when a change in price is met with a proportionate change in demand
E = 1 unit elasticity

13

Factors affecting the elasticity of demand

Luxury or necessity
Existence of close substitutes
Proportion of income spent on the good
Length of time since last price change
Durable items