commerce Flashcards
Define consumer demand
Quantity consumers are willing / able to buy various prices over time, ceteris paribus.
Define and explain law of demand
Price goes up QD goes down; Price goes down QD goes up.
What is a demand schedule?
Market demand schedule (times)
price $ QD
10 2
What happens to quantity demanded (QD) when price decreases?
Increase in QD: price down QD up
Arrow down and left.
What happens to quantity demanded (QD) when price increases?
Decrease in QD: price up QD down
Movement up and right.
Why is consumer demand less at higher prices and more at lower prices?
It is more affordable at lower prices.
What causes an increase in demand?
Shift to the right: increased income, decrease of complementary goods, increase price of substitutes, fashionable, positive publicity.
What causes a decrease in demand?
Shift to the left: decreased income, increase of complementary goods, decrease price of substitutes, unfashionable, bad publicity.
Define and state an example of a complement good
Complement = consume together
Example: socks and shoes, apple and cheese.
What is consumer expenditure?
Consumer expenditure = P X Q
Price x quantity.
Define an example of a substitute good
Substitute = consume instead of
Example: apple over banana.
Define supply
Supply is the quantity of a good or service that a producer is willing and able to sell over a range of prices.
What is the law of supply?
Price goes up QS goes up; Prices goes down QS goes down.
Why do firms supply less at lower prices and more at higher prices?
Supply at higher prices to earn more profit vice versa.
What causes an increase in supply?
Shift right: tech improves, quota increases, legal factors, decrease in cost of production, trade barriers removed.
What causes a decrease in supply?
Shift left: production increases, increase in cost of production, quota decreases, tech becomes outdated, legal barriers (against suppliers).
Explain why a curve may shift left or right.
Relaxed ceteris paribus –> other factors change.
How do you calculate a firm’s revenue?
Revenue = P X Q.
What is the difference between productivity and production?
Productivity = output; Production = efficient use of resources.
Market equilibrium
Where QS and QD reach the same point in the middle
Pe, Qe
Meet same point on the graph
Shortage
- Below market equilibrium
Price up, QD down, QS up to restore
Surplus
- Above market equilibrium
