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Flashcards in Demand And Supply Deck (22):
1

Demand

Demand refers to the quantity of a good or service that consumers are willing and able to buy at various prices over a given period of time, ceteris paribus

2

Law of demand

States that an inverse relationship exists between the price and quantity demanded of a good, ceteris paribus

3

Final demand

Demand for good used by end users

4

Derived demand

Demand for good as an input to produce another good in demand

5

Complements

Good jointly used to satisfy the same want

6

Substitutes

Goods that have similar uses which satisfy the same want

7

Non price determinants of demand

PTIDE
Prices of related goods
Tastes and preferences
Income of consumers
Demographics
Expectations

8

Prices of related goods (demand)

Discuss substitutes and complements

9

Tastes and preferences

Consumption choices are influenced by tastes and preferences, affecting desirability (fashion/fad, advertising, government actions, changes in season/weather, festival etc)

10

Changes in consumer income

Affects purchasing power.
Identify if it is a normal/inferior good

11

Demographics

Influences tastes and preferences and potential market size
(Population, gender composition, age composition)

12

Changes in expectations

Expectation of future changes in income and price

- If income expected to increase, spending will increase.
- Speculative demand: purchase of goods to earn profit at a later date

13

Supply

Supply refers to various quantities of a good or service producers are willing and able to offer for sale at various prices over a given period of time, ceteris paribus

14

Law of supply

States that a direct relationship exists between the price of a good and the quantity supplied of a good, ceteris paribus

15

Non-price determinants of supply

CPPSE
Cost of production
Producers (number of)
Prices of related goods
Supply shock
Expectations

16

Cost of production

1) changes in prices of input (e.g. Electricity)
2) change in state of technology (automation of manual work)
3) changes in productivity (upgrading skills)
4) indirect taxes/subsidies

17

Changes in prices of related goods (supply)

1) competitive supply
2) joint supply

18

Number of producers

Increase in number of producers = increase in market supply

When producers deem selling certain goods is a lucrative business ensuring high profit, they will enter the market thus increasing market supply

19

Supply shocks

1) changes in climatic conditions (floods, droughts)
2) abnormal circumstances (e.g. Political turmoil -> labour unrest)

20

Producer's price expectations

If price is expected to rise, producers may temporarily reduce current supply and build up stock, only to release them onto the market when the price does rise

21

Theoretical conditions in which price and quantity always tend toward market equilibrium

Perfect competition and free from government intervention

22

Market equilibrium price and quantity

Refers to the price and quantity exchanged where quantity demanded = quantity supplied, ceteris paribus