Supply and Demand L2 Flashcards
(11 cards)
Competitive Market
When a group of buyers and sellers are interacting to trade a g/s
Perfect Competition (PC)
- homogenous goods
- Numerous buyers and sellers which cannot influence market price
e.g. wheat, milk
Monopoly
Single seller of a product without close substitutes
e.g. water
Monopolistic Competition
Many sellers with product differentiation
e.g. clothing brands
Oligopoly
Only a few sellers
e.g. airlines
Law of Demand
When prices increase, quantity demanded decreases
e.g. price of coffee goes from $5 to $3 so more demand
Causes of Shifts in Demand
- Income- dependant
- Price of related goods- dependant
- Consumer preferences- positive correlation
- Consumer Expectations- for future income OR the future price of the good
- Number of Buyers- positive correlation
Normal Good and Inferior Good
NG- as income rises, demand for normal goods rise e.g. designer clothing
IG- as income rises, demand for inferior good falls e.g. instant noodles
Complements and Substitutes
C- 2 goods for which a rise in price leads to a fall in demand for the other e.g. printer and ink carts
S- 2 goods for which a rise in price leads to a rise in demand for the other e.g. butter and margarine
Law of Supply
As prices rise, quantity supplied also rises
Causes of Shifts in SC
- Input prices- negative correlation, e.g. steel for car manufacturing (higher steel prices reduce car supply)
- Technology- positive correlation, e.g. automation in manufacturing of cars (robots replace labour)
- Supplier Expectations- If suppliers expect prices to rise, they are likely to store some of the good and supply less to the market today
- e.g. Oil prices- during COVID-19, OPEC expected global demand for oil to fall significantly thus, OPED decided to cut oil production to prevent a price collapse - Number of Sellers- positive correlation- e.g. New smartphone companies entered the market causing increased supply of smartphones, shifting the supply curve to the right
