1.2 How markets work Flashcards
1.2.1 Rational decision making
What is a market?
Where consumers & producers come into contact with eachother to exchange goods & services.
1.2.1 Rational decision making
What is utility?
The amount of satisfaction obtained from consuming a good or service.
1.2.1 Rational decision making
What is rational decision making?
Where consumers allocate their expenditure on goods & services to maximise utility, & producers allocate their resources to maximise profits.
1.2.1 Rational decision making
What do consumers & producers need to make rational decisions?
- perfect market information
- computational & judgement skills
- the ability to make decisions free from the behaviour of others
- sufficient time to make decisions
Because consumers & producers may embody all these conditions they may make decisions that are not considered ‘rational’
1.2.2 Demand
What is demand?
The quantity of a good/ service purchased at a given price over a given time period.
1.2.2 Demand
What does the demand curve show?
The quantity of a good/ service that would be bought over the range of different price level in a given period of time.
1.2.2 Demand
What causes a contraction in demand?
A rise in prices
1.2.2 Demand
What causes an extension in demand?
A fall in prices
1.2.2 Demand
What does marginal utility mean?
The utility/ satisfaction obtained from consuming one extra unit of a good/ service.
1.2.2 Demand
What is the law of diminishing marginal utility?
As successive units of a good are consumed, the utility gained from one extra unit will fall.
1.2.2 Demand
What causes an outward shift in the demand curve?
- fall in price of complementary goods
- a rise in price of substitute goods
- a change in fashion/ tastes
- increased advertising
- increase in real incomes
- decrease in income tax
- increase in population/ change in age structure
- increase in credit facilities
& vice versa
