Supply and Demand market mechanisms Flashcards
(22 cards)
Allocative Efficiency
Resources are allocated to the production of goods and services that consumers demand the most, maximising society’s satisfaction.
Consumer Sovereignty
The situation in an economy where the desires and needs of consumers control the output of producers.
Ceteris Paribus
A Latin phrase meaning “all other things being equal.” Used in economics to isolate the effect of one variable.
Disposable Income:
Income remaining after income taxes and receipt of welfare payments, which is available for spending or saving.
Homogenous Products:
Goods or services that are virtually identical and easily substitutable.
Income Effect
The change in quantity demanded of a good due to a change in consumers’ purchasing power resulting from a price change.
Law of Demand
As price increases, quantity demanded decreases, and vice versa,.
Law of Supply
As price increases, quantity supplied increases, and vice versa
Market Mechanism
How the forces of demand and supply determine relative prices, which allocate resources in a market economy.
Market Structure
The way in which buyers and sellers come together in a market (e.g., perfect competition, oligopoly).
Microeconomics:
The study of individual economic units, such as consumers, firms, and markets.
Multi-branding:
A business strategy where a core business markets similar products under separate and distinct brands.
Perfect Competition:
A theoretical market structure characterised by many buyers and sellers, homogenous products, free entry and exit, perfect information, and no market power.
Predatory Pricing:
Setting prices at a very low level with the intention of eliminating competitors.
Price Taker
A firm in a perfectly competitive market that has no power to influence the market price and must accept the prevailing price.
Profit Motive
The incentive for firms to increase production as prices rise because higher prices lead to higher profit margins.
Relative Prices
The price of one good or service compared to the price of another good or service.
Resource Allocation:
The process of distributing scarce productive resources (land, labour, capital, enterprise) among different uses.
Technical Efficiency
Producing goods and services using the lowest-cost method of production.
What are 4 steps for a 4 mark question
Step 1: Demonstrate understanding of the factor
Step 2: Link to impact on households or firms
Step 3: GRAPH - refer to the shift and then a disequilibrium
Step 4: Outcome - conclude based on the question asks
Non Price factors of demand
Disposable income
substitute product
complement product
interest rates
Consumer sentiment
free point
free point
