Chapter 3 Flashcards
(18 cards)
Effective Demand
Demand backed by cash
Ceteris Paribus
All other things remaining unchanged
Perfekt Market
Many buyers and sellers, rational players, perfekt knowledge, no interference
Normal/Superior Good
Demand rises as income rises
Inferior Good
Demand falls as income rises
Substitute
Goods that can replace good in question
Complement/Joint Demand
Good that is used with the good in question
Equilibrium Price
Where demand equals supply
Market
A place that facilitates the interaction between buyers and seller in the exchange of goods and services
Assumptions of perfect markets
- many buyer/sellers
- prefect knowledge of prices throughout market
- rational consumers/producers basing choice on price
- no govt intervention
- not all markets are physical
Law of Demand
at higher prices, quantity demanded falls
- exception when quality of service is considered
Factors effecting demand
- Disposable Income
- Price of Other Goods
- Substitutes & Joint Demand
- Comparative Quality/Value Added
- Fashion and Tastes
- Advertising
- Opportunities for Consumption (Eg. Leisure Time)
- Population
- Other Factors
- Fashion
- Trends
- Religion
Relation between Income and Demand
As income rises, demand for normal goods can rise and inferior goods can fall
Substitutes Goods
Price of other goods could be cheaper - more appealing - thus will be bought in replacement of other
Complement Goods
Joint goods - one that can’t be, or is not typically, bought without the other
Supply and Own Price
have positive relationship - as prices rise - so do supply of goods
Affects to Supply and other factors
Prices of other goods supplied Changes in production costs Technical improvements Taxes and subsidies Other factors (e.g. industrial relations)
Comparative Quality and Value
Quality of product is compared. Quality and price are correlated, thus the higher the quality, the higher the price of the product.
An improvement in the quality of goods or services could lead to rise in demand of the goods/services
