Chapter 3 Flashcards
The price theory
Deals with the interdependence between supply, demand and price.
Price
The monetary value that the consumer is prepared to pay for it and what the manufacturer is prepared to accept when selling the product or service.
The point at which the consumer and manufacturer are satisfied to pay
The equilibrium price
The relationship between demand, supply and price
When demand increases and supply stays the same, the price will increase. But if demand decreases and the supply stays the same, the price will decrease.
Supply
The quantity that a supplier of a specific product is prepared to offer at a specific time and at a specific price.
Supplier
The supply curve
When the price the consumer is prepared to pay for a product increases, the supplier will make a profit. Suppliers will always try to sell at the highest price.
(Price is vertical, demand is horizontal, curve is down to up, positive gradient)
Demand
Related to time and price.
Consumer/Manufacturer
Demand for a product
Means the consumer has a need for the product, can afford the products and is prepared to pay the price of the product.
The demand curve
Illustrates the relationship between demand and price.
(Price is vertical, demand is horizontal, curve is up to down, negative slope)
Different demand products
Substitute products - different products that satisfy the same need
Brand name product
Complementary products - two or more goods typically consumed or used together
