Chapter 4 Flashcards
What is a market
A medium through which buyers and sellers of goods or services come together to trade.
4 types of markets
Goods - finished goods or services
Factor - factors of production (land, labour, capital, entrepreneurship)
Commodity - raw materials
Financial - shares and loans
What is demand
The extent to which consumers are willing and able to buy a good or service at any price over a set time period.
What is The law of demand
The inverse relationship between price and quantity demand
What is Utility
The measurement of the amount of satisfaction or enjoyment that a customer gets from consuming a given good or service.
What is opportunity cost
The individual has to give up more in comparison to other goods/services they could buy
What is extension of demand
An increase in quantity demanded as the price has fallen
Contraction of demand
A decrease in quantity demanded as the price has risen
Consumer expenditure =
Quantity demanded x price
2 types of demand
- Demand per consumer
- Aggregate demand, across a whole economy
5 Factors influencing demand
- Level of disposable income
- Consumer taste
- Market expectation
- Size of the population
- Type of good
3 types of good
- Inferior v normal goods
- Substitute
- Complementary goods and services
What is an inferior good v a normal good?
The demand for a normal increases as income increases.
The demand for an inferior good falls as income increases
What is a substitute good
If the price of strawberries increases, consumers may buy raspberries instead
What is a complementary good?
For example, if the demand for strawberries increases the demand for cream may increase as well.
What are Giffen and Veblen goods?
Their demand increases, as the price goes up.
What is a Giffen good
If it’s a staple good, the consumer will buy more, as the price increases and instead they will stop buying the complementary goods.
Usually:
- inferior
- no substitute available
- a staple good
What is a Veblen good?
The more expensive and exclusive a good is, the more desirable to some sectors of society.
- a luxury good
- appear to be exclusive
The supply curve
When the price is higher the supplier wants to supply more, as the profit is higher
Types of supply
- Supply: of a particular products
2 aggregate supply: the extend to which suppliers are willing to supply goods and services across a whole economy.
What factors affect supply?
- Cost of making the good/service
- Price of substitutes
- Market expectations
- Number of companies in the industry
- Technological changes
- Climate or weather
What is the equilibrium?
The equilibrium price is the price in which supply and demand are balanced.
