1.3 Introducing the market Flashcards
Define demand
Quantity of a good people are willing and able to buy at a given price at a given time
What is the main objective driving consumers’ decisions?
Assuming consumers are rational, they will aim to maximise their satisfaction by weighing the opportunity cost and trade-off one decision to another
What causes a shift in or movement along the demand curve
Non-price factors cause shifts in demand
Movements along the demand curve are caused by changes in price
Factors which cause a shift in demand
PIRATES
- Population:
- Income changes
- Related goods: Substitutes and compliments
- Advertisements: Marketing
- Trends and tastes
- Expectations: Uncertainty, predictions
- Seasons
Define supply
Amount of a good or service that producers are willing and able to provide at a given price, at a given time
What is market supply
Total output of all suppliers in a market
What is the link between price and quantity?
As quantity demanded increases price increases. As the quantity supplied increases, prices fall. Firms always aim to profit maximise.
What causes a shift in or along the supply curve?
Shifts are caused by non-price factors
Shifts along supply curve are caused by changes in price
Name 6 factors which cause a shift in supply
Costs of production, introduction of new technology (marginal cost), indirect taxes, subsidies, market saturation, external shocks
What is the equilibrium point
What is the equilibrium price
Define excess demand
Define excess supply
Draw the diagram for excess demand
Draw the diagram for excess supply
Name 4 limitations of the demand and supply model
Explain how the price mechanism works
What is consumer sovereignty
How to firm respond to a change in demand
What is a niche market
What is a mass market
