competitive markets Flashcards
demand and supply
What is a market?
place where buyers and sellers come together to exchange goods and services
What is competition?
process in which rivals battle in order to achieve some advantage
What is a competitive market?
market where multiple firms operate within the same industry and offer similar goods and services
What is demand?
quantity of a good or service that consumers are both willing and able to purchase at a given period of time
What is market demand?
sum of all individual demand for goods and services in a market
What is the law of demand?
as price increases, demand decreases as with the same budget, consumers can now purchase less; inverse proportion
What are the inferior goods and how can it influence demand?
goods in which as income increases, demand decreases as consumers can now switch to more expensive alternatives
- causes a leftwards shift of demand
What are the normal goods and how can it influence demand?
goods in which as income increases, demand increases
- leading to a rightward shift of demand
What are the complementary goods and how can it influence demand?
goods or services that are bought together with each other and as demand for one good increases, demand for the other good also increases
What does a shift in the demand curve mean?
change in demand caused by a non-price determinant
What does a movement along the demand curve mean?
change in quantity demanded caused by a change in price
What are non-price determinants of demand?
Population - increased population means increased demand
Advertising - encourages more customers
Substitutes - fall in demand for one good increased demand for the other good
Income - as income increases, demand for normal goods increase, but demand for inferior goods decreases
Fashion and trends - if goods become more popular, demand increases
Interest rates - lowers income and lowers demand if interest rates are high
Complement goods - of prices increase, demand for both goods decreases
Expectations of price - demand increases while price is cheap
Government policies - can limit demand
What are the substitute goods and how can it influence demand?
goods or services that can be used as alternatives, and an increase in the price of Good A increases demand for Good B
What is the income effect? How can it be seen on a graph?
if price falls, consumer purchasing power (real income) increases as you are able to purchase more of a good with the same budget
What is the substitution effect? How can it be seen on a graph?
if the price of Good A increases, the consumer now buys less of Good A and more of Good B as it’s cheaper with the same budget
What is utility?
satisfaction gained from consuming a good or service and is measured in utils
- as utility increases, it shifts the curve to the right
What is the law of diminishing marginal utility?
as consumption of an extra unit of a good increases, extra utility gained decreases and it will require a lower price in order to incentivize consumers to purchase more
What is supply?
quantity of a good or service a firm is willing and able to produce and sell at any given time
What is the law of supply?
as price increases, supply increases because at a higher price, each unit supplied increase profit assuming the costs are the same which acts as an incentive
What is market supply?
sum of all individual firm’s supply of a good or service
What does a movement along the supply curve mean?
change in quantity supplied due to a change in price
What does a shift in the supply curve mean?
change in supply due to a non-price determinant (links to costs)
What are non-price determinants of supply?
Subsidies - introduction of a subsidy lowers costs and increases supply
Productivity - more supply lowers per unit costs, causing a rightward shift
Indirect tax - increases costs and lowers production, causing a leftward shift
Number of firms - more firms increases total supply of goods
Expectations of price - supply increases in short-term if prices increases
Technology - lowers production costs, so supply increases
Weather conditions - can affect and limit supply such as poor harvest due to weather conditions
What is joint supply?
production of goods derived from a single product
What is competitive supply?
production of two or more goods by the same firm
What is the difference between price and cost?
price - sum of money you pay for a good or service
costs - how much money it takes to produce a good or service
