1.2.3 Markets Flashcards
What is Demand?
The quantity of a good/service that consumers are willing and able to buy at a given price, at a particular time
What is Supply?
Supply is the quantity of a good/service that producers are willing and able to supply to the market at a given price, at a particular time.
What is Market Equilibrium (Equilibrium Price)?
When the quantity that buyers demand is the same as the quantity the sellers wish to supply.
It is the point at which demand is equal to supply.
What is the free interaction of supply and demand known as?
The free interaction of supply and demand is known as market forces.
When will the market be in disequilibrium?
- When supply and demand aren’t equal the market is in disequilibrium
- If there’s excess supply or demand the market will be in disequilibrium
What is Excess Demand?
When the demand for a good/service is greater than its supply
What is Excess Supply?
When the quantity supplied to a market is greater than the quantity demanded
What will cause an extension in demand?
A decrease in price causes an extension in demand
What will cause a contraction in demand?
An increase in price causes a contraction in demand
When does the demand curve shift to the left?
Demand curve shifts to left when there is a decrease in the amount demanded at every price.
When does the demand curve shift to right?
Demand curve shift to the right when there is an increase in the amount demanded at every price
What will cause an extension in supply?
An increase in price causes an extension in supply
What will cause a contraction in supply?
A decrease in price will cause a contraction in supply
When does the supply curve shift to left?
A supply curve shifts to the left when there’s a decrease in the amount supplied at every price.
When does the supply curve shift to the right?
A supply curve shifts to the right when there’s an increase in the amount supplied at every price
If the demand curve shifts, assuming no change in supply curve
What will happen to price and supply if demand increases?
If demand increases then price will increase and supply will extend creating a new equilibrium price.
If the demand curve shifts, assuming no change in supply curve
What will happen to price and supply if demand decreases?
If demand decreases then the price will fall and supply will contract creating a new equilibrium price
If the supply curve shifts, assuming no change in the demand curve
What will happen to price and demand if supply increases?
If the supply increases then price will fall and demand will extend creating a new equilibrium price.
If the supply curve shifts, assuming no change in the demand curve
What will happen to price and demand if supply decreases?
If supply decreases then the price will rise and demand will contract creating a new equilibrium price.
What will a change in price lead to?
A change in price will lead to a movement along the supply or demand curve
What will a change in any other factor that’s not price lead to?
A change in any other factor will lead to a shift in the demand or supply curve
What are some changes that will cause a shift in the demand curve?
- Consumer Income
- Prices of other goods and services
- Consumer tastes and fashion
- Other factors e.g. advertising, seasonal changes, external shocks, demographics
What are some changes that will cause a shift in the supply curve?
- The impact of changing costs of production
- Improvements / New technology
- Government policies e.g. Indirect taxes & Subsidies
- Other factors e.g. expectations, weather conditions, external shocks
