1B Flashcards
What is demand
The quantity of a good or service that consumers are willing and able to buy at any given price in a given time period.
What is the law of demand
The inverse relationship between quantity demanded and the price of a good or service, ceteris paribus
What is diminishing marginal utility
An individual gains less extra satisfaction from consuming a product as each extra unit is consumed. This helps explain why demand curve is downward sloping. Meaning the consumer will be prepared to pay a progressively lower price for each additional unit of consumption.
Why is demand curve downward sloping
There is an inverse relationship between the price and the quantity demanded
For PCADC what would P-up QD-Down cause
Contraction in D
For PCADC what would P-Down QD-Up cause
Extension in D
Non price factors affecting demand
P-population-change in number and age distribution of potential buyers.
I-Income-change in income.
C-Complimentary goods- Change in price of the linked good.
T-tastes and preferences-changes towards/away.
S-substitute goods-change in price of a competing good.
PICTS
What does population affect
The market size
What is a normal good
A good where the quantity demanded increases in response to an increase in consumer income. (↑Y = ↑D),(↓Y = ↓D)
What is a luxury good
A good where as income rises, consumers spend proportionally more on the good.
What is necessity good
A good where as income rises, consumers spend proportionally less on good.
What is an inferior good
A good where the quantity demanded decreases in response to an increase in consumer incomes. (↑Y = ↓D),(↓Y = ↑D)
What is a complementary good
A good where an increase in the price of another good causes its demand to fall.
e.g increase in P of good A = decrease in D of good B
Decrease in P of good A = Increase in D of good B
Example of complementary goods
Fish and chips, tennis balls and tennis rackets.
As a result of tastes and preferences
Consumer are W and A to buy more or less of the good.
what is a substitute good
A good where an increase in the price of another good causes its demand to rise.
e.g Increase in P of Good A= increase in D of good B
decrease in P of good A = decrease in D of good B
Examples of Substitute goods
X-box and PlayStation, Burger king and MCD’s
Picts
Shift-increase or decrease
Price change
Along-Contraction or extension
What is consumer surplus
The difference between the amount that consumers are willing to pay and the price that they actually pay
Original consumer surplus is
APE
Consumer surplus after price change
A,P1,E1
What is the gain/loss
P,E,E1,P1
Effects of habitual consumption
May lead to persistent behaviour and unresponsiveness to market changes.
Effects of altruistic decisions
May mean consumers make socially responsible decisions
Effects of herding behaviour
May mean consumers buy goods because others buy them
Effects of impulse buying
Is where consumers suddenly purchase a good, when they had not previously planned it.
What is supply
The quantity of a good or service that producers are willing and able to sell at any given price in a given time period.
Non price factors affecting Supply curve
P-Production costs
I-Indirect tax e.g Indirect tax-decreases, Costs/unit decreases= increase in supply
N-number of firms-Increase in number of firms leads to an increase in number of suppliers= increase in supply
T-technology-Increase in tech=higher productive efficiency= lower costs/unit=Increased supply.
S-Subsidies- increase in subsidies= decrease in costs/unit- higher profit= increased supply.
What is producer surplus
The difference between the amount producers are willing to sell a good for and the price they actually receive
Original producer surplus
APE, above surplus curve
What is market equilibrium
When the market price is where the quantity demanded is equal to the quantity supplied
The equilibrium price is where
Demand and supply intersect
Disequilibrium=
price too high-excess supply
Price too low-excess demand
