2.1 The determinants of demand Flashcards
What is a market?
Voluntary meeting of buyers and sellers
Both are willing partners to the exchange
Not forced in any way
Not in a particular geographical location
When does a market transaction takes place?
Whenever a good or service is bought and sold.
When is a market highly competitive?
A market is highly competitive when there are a large number of buyers and sellers that all accept the market price.
How is the market price/equilibrium price determind?
Suply and demand in the whole market.
What are the features of a competitive market? (4)
Lacks barriers to entry and exit
New buyers and sellers can enter the market without incurring costs
High degree of transparency
Buyers and sellers can quickly find out what others in the market are doing
What is demand?
the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period
What does the demand curve show the relationship between?
Demand curve shows relationship between price and quantity demanded
What is individual demand?
Quantity that as individuals we would like to buy
What is market demand?
sum of the demand of all consumers in the market
What is effective demand?
the desire for a good or service backed by an ability to pay
What is the law of demand?
As a good’s price falls, more is demanded.
Therefore there is an inverse relationship between price and quantity demanded.
When does a movment along the demand curve occur?
When there’s a change in price.
What is an extension of demand?
Price decreases resulting in higher demand.
What is a contraction of demand?
Price increases so demand decreases.
What is the equation for quantity demanded of a good or service?
Qd = f (p, y, p of other goods, consumer tastes, any other factors)
Qd = quantity demanded
F = function of / relationship
P = price of good
Y = consumer income
