1.2 How Markets Work-Demand And Supply Flashcards
Consumer surplus
The difference between what consumers would pay and what they do you pay
Producer surplus
Difference between what producers are willing and able to supply a good for what price and what price they do sell for
Demand is
The quantity of goods and services that consumers are willing and able to buy a given time period
Laws of demand are
- As price falls, we see an expansion/extension of demand.
- As price rises, there will be a contraction of demand.
Effective demand is
Desire to buy the products is backed up by a wellness and ability to pay.
Latent demand is often known as
E.g.
-potential demand
E.g. where there is a desire to buy the products, but consumers lack the purchasing power. Highly affected by advertising.
Derived demand is
The demand for a product X maybe linked to the demand for a related product Y
Joint demand
Is one demand for one product is positively related to demand for a related good or service
Two compliments are said to be joint demand e.g. Fish and chips
What is composite demand?
Exist were good to have more than one use, so an increase demand for one product lead to a fall and supply of another
E.g. Milk can be used for cheese, yoghurt, butter.
What is incentive to firms?
A higher price encourages and allows firms to produce
What is signalling
Changes in price shows changes in supply and demand. This acts as a signal to producers and consumers.
What is law of diminishing marginal utility?
– As more of one is consume, the additional utility from each extra unit consumed will fall
Shift in demand is due to what factors
Non-price factors
Things that would cause a shift in the demand
– Income
– unemployment/employment rate
– Changes in law
– Inflation rate
– Trends
– Population rise
– Price of others goods
What causes movement on a supply curve
Price
