Chapter 3 Flashcards
Define market
Voluntary meeting of buyers and sellers with exchange taking place
Define demand
Quantity of goods or services that consumers are willing and able to buy at given prices in a given period
Define supply
The quantity of a good or service that producers are willing and able to sell at given prices in a given time
What is market ruining price
The price at which planned demand = planned supply
Define effective demand
Demand with the ability to pay
Draw a demand curve
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Difference between market and individual demand
Market demand: quantity of a good or service all consumers in a market are willing and able to buy
Individual demand: quantity of a good or service a particular consumer is willing and able to buy
Reason for a move along the curve in demand
Change in price
Reasons for a shift in the demand line
- Price of substitute
- Price of complementary
- Personal income
- Tastes and preferences
- Pop size
Difference between normal and inferior good
Normal good: good for demand increases as income rises
Inferior: good for demand decreases as income rises
Price elasticity of demand equation
% change in demand / % change in price
PED answers and draw
infinite= p. elastic >1= elastic 1= unit elastic <1= inelastic 0= p. inelastic
Factors determining price elasticity of demand
- Substituitability
- % of income
- Necessities or luxuries
- Width of market
- Time (Long run or short run)
Income elasticity of demand equation
% change in demand/% change in income
YED answers
1+ luxury good
0-1 normal good
0> inferior good
Cross elasticity of demand equation
% change in demand good A / % change in price good B
XED answers
above 0=substitute
0= no relationship
below 0= complementary
Draw supply curve
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Movement along supply
Price change
Movement of supply
- Cost if production
- Technical progress
- Taxes imposed by firms
- Subsidies granted
Price elasticity of supply
% change in supply / % change in price
PES values and graphs
infinite = p. elastic >1 = elastic 1= unit elastic <1 = inelastic 0 = p. inelastic
Factors affecting PES
- Length of production period
- Availability of spare capacity
- Ease of accumulating stocks
- Number of firms in a market
- Time
Draw supply and demand graph
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Define equilibrium
State of rest when balance between opposing forces
Define disequilibrium
A situation in which opposing forces are out of balance
Define market equilibrium
Planned demand = planned supply
Define market disequilibrium
Planned demand > planned supply
Planned demand < planned supply
Draw Demand and supply with excess demand and excess supply
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Draw how to get ride of excess demand and excess supply
Explain joint supply
When one good is produced another one is also produced from the same raw material.
Define joint demand
Where one is bought with the other
Define composite demand
When demand for one use of the good increases supply of the other decreases
Define derived demand
Where a good is necessary for the production of other goods e.g engines and cars
