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Flashcards in The Market Economy Deck (23)
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1
Q

individual demand

A

refers to the quantity demanded of a good or service by individual consumers at various prices

2
Q

market demand

A

refers to the aggregate quantity demanded of a good or service by all consumers in a market at various prices

3
Q

factors that affect market demand

A
  • price
  • price of substitute/complementary good
  • changes in consumer tastes/preferences
  • increase in consumer income/confidence
  • expectation that the price will rise or fall in the future
  • government incentives
4
Q

equi marginal principle of consumer behaviour

A

states that consumers will spend their limited income in such a way so that the ratio of marginal utility to price is the same for every good consumed to maximise utility.
States that utility is maximised when the utility for the last euro spent on each product is equalised.

5
Q

consumer surplus

A

happens when the price that consumers pay for a product/service is less than the price they are willing to pay.
It is a measure of the additional benefit that consumers receive because they’re paying less for something than what they were willing to pay

6
Q

total revenue

A

total receipts a seller can obtain from selling goods or services to a buyer

7
Q

movement along a demand curve

A

a change in the price of the good itself will cause a movement along the demand curve (all other things being equal) and this is referred to as a change in the quantity demanded

8
Q

shift in the demand curve

A

a change in any of the factors other than price will cause the demand curve to shift, and this is referred to as a change in demand, at any given price

9
Q

the law of demand

A

states that as price rises the quantity demanded will fall and vice versa, ceteris paribus.
We illustrate the law of demand using a downward sloping line from left to right
There is an inverse relationship between the price of the good and the quantity demanded

10
Q

the law of supply

A

states that as price rises the quantity supplied will rise, and vice versa, ceteris paribus.
We illustrate the law of supply using an upward sloping line from left to right.
There is a positive relationship between the price of the good and the quantity supplied

11
Q

producer surplus

A

the difference between what a producer receives for a good and the minimum they were willing to accept for the good.
The extra earnings obtained by the producer above the minimum required for them to supply the good/service.

12
Q

derived demand

A

where a factor of production is not demanded for its own sake but rather for its contribution to the production process

13
Q

joint demand

A
where two(or more) goods are used in conjunction with one another in order to achieve utility.
They are complimentary goods, eg golf clubs and golf balls
14
Q

market equilibrium

A

arises where the quantity demanded equals the quantity supplied
equilibrium occurs where the price is such that the quantity consumers wish to buy is exactly balanced by the quantity that firms wish to supply
no tendency for price change.

15
Q

law of diminishing marginal utility

A

states that as a consumer consumes more units of a good the extra satisfaction or marginal utility derived from each additional unit consumed will eventually decline.

16
Q

assumptions under the law of diminishing marginal utility

A
  • applies after the ‘origin’ ie it only sets in after a certain minimum quantity is consumed
  • consumer tastes don’t change
  • consumer incomes don’t change
  • no time lapse between the consumption of successive units which permits a change in tastes
17
Q

complementary goods

A

goods which are consumed together or used in conjunction with one another
a rise in the price in one good will cause a decrease in the demand for the other

18
Q

effective demand

A

supported by the necessary purchasing power

19
Q

exceptions to the law of demand

A
  • giffen goods
  • addictive goods
  • snob items
  • speculative goods
20
Q

substitution effect

A

when the price of a good rises a consumer may switch to a cheaper alternative to maximise utility

21
Q

income effect

A

when the price of a good rises it means the consumers real income will fall

22
Q

assumptions to analyse consumer behaviour

A
  • consumers act rationally
  • consumer has a limited income
  • consumer is subject to the law of diminishing marginal utility
  • consumer aims for maximum satisfaction
23
Q

equilibrium

A

quantity demanded equals quantity supplied and there is no tendency for prices to change