3.1 The Determinants Of Demand Flashcards
What is the nature of the market?
How demand and supply of goods and services interact with each other
What is a market?
Voluntary meeting of buyers and sellers in which exchange takes place
When does a market transaction occur?
Whenever a good and service is voluntary brought and sold
What is effective demand?
The desire for a good or service to be backed by an ability and willingness to pay
Demand?
Quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time
Supply?
The quantity of a good or service that producers are willing and able to sell at a given price over a given period of time
What are competitive markets?
Large number of buyers and sellers possess good market information and can easily enter and leave the market
What is the market ruling price?
(Equilibrium price)
-price at which planed demand=planned supply
When do competitive markets occur?
When there are a large number of buyers and sellers passively accepting the market ruling price
How is the market ruling price set?
The interaction of all those taking part in the market
What do highly competitive markets lack and what does this mean?
-entry and exit barriers
-new buyers and sellers can enter the market without incurring costs
What are the two markets households and firms operate in?
Good market
Factor markets
Market demand?
Quantity of a good or service that all consumers in the maker are willing and able to pay at different prices
Individual demand?
Quantity of a good or service that a particular consumer or individual is able to but at different marker prices
What does the demand curve show?
Relationship between the price of a good or service and the quantity of it demanded at different prices
What is the x axis in a demand curve?
Quantity demanded per period of time
When does a movement on the demand curve occur?
When the price of a good changes
What is contraction in demand?
When a rise in price leads to less being demanded
What is an extension of demand?
Fall in price leading to more goods being demanded
What must we assume when we create a demand curve? What is this known as?
That all other variables that may also influence demand are constant
Ceteris Paribus
What does Ceteris paribus translate to?
Other things being equal
What can cause a shift in the demand curve (7 things)
-prices of substitute goods
-prices of complementary goodde
-derived demand
-composite demand
-incomes
-tastes and preferences
-improvement in tech
What is composite demand?
When some goods have more than one use(oil can be used for plastics or petorl)
What is derived demand?
Demand for a good or a factor of production used in the making of a good or service
Increase in demand for fencing increases demand for wood
What are substitute goods?
Alternative goods that can be used for the same purpose
What are complementary goods?
When two goods are component they experience joint demand
Increase of demand vs decrease in demand on the graph
Increase-shift to the right
Decrease-shift to the left
What is a normal good?
Good for which demand increases as income rises and decreases as income falls
What is an inferior good?
Good for which demand decreases as income rises and demand increases as income falls
What are the 3 ways a demand curve can not be downward sloping?
-speculative demand
-Veblen goods
-goods for which consumers use price as indicator of quality
How does speculative demand change the demand curve?
-demand changes as people speculate what will happen to houses or currency
How does goods for which consumers use price as an indicator of quality change the demand curve?
-may be more demand for a good as price rises as customer thinks it’s better without actually knowing
How can Veblen goods change the demand curve?
Companies try and sell products because they are more expensive than competitors
-customers want these goods because they are “reassuringly expensive”
market demamd curve diagram:
shift in demand on a diagram(to the right):
diagram: perfectly elastic demand
diagram: perfectly elastic demand
diagram: perfectly inelastic demand?
diagram: unit elasticty(PED of 1)
