Markets Flashcards
(37 cards)
Demand
The quantity of a good/service that consumers are willing and able to purchase at various price levels at a given point in time
The Law of Demand
As the price of a good/service increases, the quantity demanded decreases
Changes in price cause…
Movement along the demand curve
Ceteris Paribus
All other things being equal
Factors Affecting Demand
The price of the good or service itself
The price of substitute & complementary goods
Expected future prices
Changes in consumer tastes & preferences
The level of consumer income
The size of the population and its age distribution
Supply
The quantity of a good/service that businesses are willing and able to offer at various price levels at a given point in time
The Law of Supply
as the price of a good/service increases, the quantity supplied increases
Changes in price cause…
Movements along the supply curve
Factors Affecting Supply
The price of the good or service itself
The price of substitute or complementary goods
The state of technology
Changes in the cost of factors of production
The quantity of the good available
Climatic & Seasonal Influence
A Market
Any situation where buyers and sellers are brought into contact to exchange goods & services for payment
Equilibirum
A situation where there is no tendency to change (ie. where demand = supply)
A Situation of Excess Supply
Sellers will lower the price of goods, resulting in an expansion of demand and a contraction of supply until equilibrium is reached
A Situation of Excess Demand
Consumers will bid up the price of goods, resulting in an expansion of supply and contraction of demand until equilibrium is reached
Market Failure
The market fails to consider the costs/benefits that the production has on society, and thus fails to set the ‘best’ price and quantity
Externalities
The social costs/benefits that arise from the production of a good/service
Private Goods
Excludable and have rivalry
Public Goods
Non-Excludable & Non-Rival
Merit Goods
Goods provided by the government, such as public transport
Price Ceiling
The government sets a maximum price
Price is kept below the equilibrium price
Price ceilings benefit consumers
Price Floor
A minimum price set by the government
Price is kept above the equilibrium price
It benefits the producers of the good/serve
Price Elasticity of Demand
Refers to the responsiveness of the quantity demanded to changes in price
Elastic Demand
a strong response to a change in price (if price increases by a small amount quantity demanded decreases by a large amount)
Unit Elastic Demand
a proportional response to a price change
Inelastic Demand
a weak response to a price change (a large increase in price leads to a small increase in quantity demanded)
