Price Theory Flashcards
What is the law of demand
The higher the price, the lower the demand (Less people are willing to play more)
What is the equilibrium point
The ideal selling price
Where the supply meets the demand
What is price theory
Supply and demand assume a perfectly competitive market, rational consumers and free entry and exit into the market
Define demand
The rate at which consumers want to buy a product
What do you put on the X axis of a supply and demand graph
Quantity demanded
What do put on the Y axis of a supply and demand graph
Price
What causes changes in demand (6)
Price
Wealth of consumers
Advertising
Weather conditions / seasons
Competition
Price of other products:
Complimentary products
Substitute productsWhere does the demand curve shift when demand INCREASES
The right
Where does the demand curve shift when demand DECREASES
The left
What is the law of supply
(From the suppliers point of view)
When the price of a product increases, the supply of the product increases
When the price decreases the supply decreases
What are the causes of changes in supply (4)
Price of product - More expensive -> More willing
Cost of production - Cheaper -> More supply
Method of production - Technological Innovations
Number of producers - More -> Faster -> Increased Supply
What is the break-even point
Point at which costs, expenses and income are equal within a business
There is no profit or loss
The net income will be 0
Why is the break-even point important? (4)
Accurate prediction on how many sales are needed
Business can determine correct selling price
Business can look at cutting down on expenses
Investors need to know when they will receive money back
What is a fixed cost
An expense that doesn’t change dependant on on production volume
What is a variable cost
An expense that changes based on production output
