2 Demand, supply, equilibrium Flashcards
what is demand?
the quantity that customers are willing and able to buy at a given price in a given period of time
What is the basic law of demand?
demand varies inversely to price
What are the main causes of changes in the market?
- price
- incomes
- fashion, tastes and preferances
- advertising and branding
- external shocks
- seasonal factors
What can change in price have an effect on?
- income and substitution
How does price effect income?
- fall in price increases the purchasing power of customers
- allows customers to buy more with a given budget
- for normal goods, demand rises with an increase in incomes
How does price effect substitution?
- fall in price of good X makes it relatively cheaper compared to substitutes
- some customers switch to good X leading to a higher demand
- much depends on whether products are close substitutes
Demand curve definition?
the amounts demanded of a product in the market at different price points
What are complementary products?
products which tend to be used together
What are substitute products?
alternative products often provided by competitors
What is supply?
quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period
What is supply?
quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period
What is basic law of supply?
as the selling price of a product rises, business expand supply to the market
What are the four main causes in the changes in amount supplied to a market?
- costs of production
- external shocks
- new technology
- taxation and subsidies
How does supply and costs of production effect market supply?
- low unit costs mean that a business can supply more at each price
- higher unit costs cause an inward shift of supply
How do external shocks effect supply?
sudden and unexpected changes in the external business environment usually impact on market supply
