2. Demand and supply Flashcards
Define market
Market: where buyers and sellers come together to complete economic transaction
Types of markets
- Product markets
- Factor markkets (ex. labour market)
- Financial markets (ex. forex)
- Stock markets
Core of market theory
Demand and supply
Define demand
DEMAND: the quantity of a good or service a consumers are willing and able to purchase at a given price level in a given time period
The law of demand
LAW OF DEMAND: as the price of the product falls, the quantity demanded of the product will increase, ceteris paribus
Translate ceteris paribus
Ceteris paribus: all other things being equal
Explain non-price determinants of demand
- Income: normal (income rises, D rises too) or inferior goods (income rises, D falls)
- Price of other products: substitutes (change in one P, opposite change in D in substitute), complements (change in one P, same change in other D) or unrelated goods (no effects)
- Tastes and preferences: advertisement, trend, weather
Other factors affecting demand
- Size of population
- Changes in age structure in the population
- Changes in income distribution
- Gov policy changes
- Seasonal changes
Movement along D curve vs. shift of D curve
Movement along: change in price
Shift of curve: change in any other determinants except price
Define supply
SUPPLY: the willingness and ability of producers to produce a quantity of good or service at a given price level in a given time period
Law of supply
LAW OF SUPPLY: as the price of a product rises, the quantity supplied will increase, ceteris paribus
Explain non-price determinants of supply
- Cost of factors of production
- Price of othe products which are also produced by the same producer
- State of technology
- Expectations (assumptions of changing prices in the future - supply to market or wait for higher price)
- Gov intervention (indirect taxes, subsidies)
Movement along S curve vs. shift of S curve
MOVEMENT: due to change in price
SHIFT: due to change in other non-price determinants
