Topic 3: Markets Flashcards
(24 cards)
LAW OF DEMAND
as the price of a produce rises (consumer) demand for the product falls OR as the price of a produce falls, (consumer demand for the product rises
inverse relationship between price and demand
INDIVIDUAL DEMAND
what one consumer demands for a product
MARKET DEMAND
what all individual consumers demand for a product
DEMAND SCHEDULE
a table showing the prices and quantity demanded
- this is then used to create a graph
FACTORS AFFECTING DEMAND: PRICE
FACTORS AFFECTING DEMAND: COMPLIMENTS AND SUBSTITUTES
FACTORS AFFECTING DEMAND: EXPECTED FUTURE PRICES
FACTORS AFFECTING DEMAND: TASTE AND PREFERENCE
FACTORS AFFECTING DEMAND: INCOME LEVELS
FACTORS AFFECTING DEMAND: SIZE AND AGE DISTRIBUTION OF POPULATION
MOVEMENT ON THE DEMAND CURVE
a movement (between points) along the demand curve is reflective of price changes for a g/s
- application of law of demand
CONTRACTION
price has increased and quantity demanded has fallen/decreased
e.g coffees from the canteen go from $4 to $6
EXPANSION
price has decreased and quantity demanded has risen/increased
e.g dog food cans go on sale from $3 to $2.50
SHIFTS IN THE DEMAND CURVE
a shift in the demand curve is the creation of a whole new curve resulting from changes in anything OTHER THAN PRICE
e.g government intervention
changes in substitute and complementary good prices/availability
consumer tastes
CURVE SHIFT TO RIGHT
curve shift to right = more
increase in demand -> consumers want more of a g/s
still the same price but more consumers want it (increase in demand)
e.g fidget spinners in 2018 (a fad)
CURVE SHIFT TO LEFT
curve shift to left = less
decrease in demand -> consumers want less of a g/s
still the same price but less consumers want it
e.g making slime now is no longer as cool as it was in 201@
PRICE ELASTICITY OF DEMAND
refers to the responsiveness of consumer demand for a product when price changes
INELASTIC
price goes up; total outlay goes up
e.g electricity or life-saving medication
UNIT ELASTIC
price goes up; total outlay remains the same
e.g maccas frozen coke
ELASTIC
price goes up; total outlay goes down
e.g luxury goods such as Iphones
FACTORS AFFECTING PRICE ELASTICITY OF DEMAND: THE EXISTENCE OF CLOSE SUBSTITUTES
if you can easily switch from one good to another, the price elasticity for either good tends to be elastic (responsive to change)
e.g pepsi is elastic as you can buy coke instead
if there are no substitutes it tends to be inelastic
e.g insulin for diabetes
FACTORS AFFECTING PRICE ELASTICITY OF DEMAND: NECESSITIES VS LUXURIES
if you think something is a necessity, your demand will tend to be more inelastic
e.g bread and milk
for something you think is a luxury, your demand will tend to be more elastic
e.g BMWs
FACTORS AFFECTING PRICE ELASTICITY OF DEMAND: PROPORTION OF INCOME SPENT ON THE GOOD
the price elasticity of demand tends to be low when spending on a good is a small portion of their available income
-> a change in price exerts little impact on the consumer’s propensity to consume
e.g gum increasing in price
FACTORS AFFECTING PRICE ELASTICITY OF DEMAND: TIME PERIOD SINCE A PRICE CHANGE
the longer the time period you look at, the more elastic demand will become as you have more time to find substitutes
e.g price rise in new cars = people are likely to repair old ones (not buy new ones -> elastic demand)
