2.1 Flashcards
market
where people are willing and able to purchase a good, service or resource, carry out exchange with those who are willing and able to provide that same good
markets can be
local, national and international
markets can also be
product, factor, labour and financial markets
product market
where goods and services are sold
factor market
where resources are sold
labour market
where people offer their services in exchange for a salary
financial market
where foreign currencies, company shares or other financial contracts are traded
competition
occurs when there is a large number of buyers and sellers acting independently; an individual seller has very little, or no market power to influence the price of a product
the opposite of competition
market power
market power =
monopoly power
market power
the ability of a firm to raise and maintain prices above the level that would occur under competition
demand
the quantity of a good or service that consumers are willing and able to purchase at various prices during a specific time period, ceteris paribus
effective demand
the quantity of goods and services that consumers are actually buying at various prices, supported by their ability to pay
demand curve
a graph showing how the quantity demanded of a commodity or service varies with changes in its price; shows effective demand
individual demand
the demand of one person for a product
draw a demand curve
…
demand schedule
a table that shows the quality demanded of a good or service at different prices
market demand
the sum of all the individual demands for a product at every price
law of demand
the principle that as the price of a product decreases, the quantity demanded of it will increase, ceteris paribus
price
a determinant of the quantity demanded of a product
non-price determinants of demand
all factors affecting demand other than price; they cause the entire demand curve to shift
normal goods
goods whose demand increases as people’s income increases (luxury products, brands)
inferior goods
goods whose demand decreases as people’s income increases (lower quality products, less expensive)
substitutes
goods that have similar characteristics and uses for consumers (different brands of the same good)
close substitutes
goods that have very similar characteristics and uses to consumers so that they switch between them easily (coke and pepsi)
remote substitutes
goods that have less similar characteristics and consumers switch less easily
complementary goods =
complements
complementary goods
goods that are consumed together (toothbrush and toothpaste)
close complements
one good has little use without the other
remote complements
sometimes consumed together, but don’t depend on each other
unrelated goods
the change in price of one good doesn’t affect the other
future expectations about future prices
if people expect an increase in price in the future, they buy more now
expectations about the future of economy
high consumer and business confidence can increase demand for goods, services and resources in the economy
positive feedback loop
a change in a system that leads to more and greater change away from the equilibrium, destabilizing the system
market bubble
a situation where price of a product rises above the reasonable assessments of its value, often rapidly, followed by market crush
market crush
prices rapidly decline
demographic changes
changes to the size, structure and distribution of a group of people
utility
the worth or value of a good or service; total satisfaction or benefit derived from consuming a good or service; we quantify it with utils
marginal utility
the benefit from consuming one additional unit of a product or service in utils
law of diminishing marginal utility
the principle that as additional units of a good or service are consumed, the marginal utility will decline (consumers get less and less satisfaction from each additional unit)
total utility declines when
marginal utility is negative
substitution effect
when consumers substitute relatively lower-priced goods when the prices of those goods decline, thereby consuming more of them; law of demand
income effect
when the price of a product falls and if consumers’ incomes have not changed, we assume that consumers can buy more of that good; their real income has increased so they demand larger quantity of goods and services
real income
the income of individuals or countries after adjusting the inflation (price changes)
