Competitive markets: demand and supply Flashcards
Demand
Quantity of a commodity that consumers are willing and able to purchase at a given period of time at a given price
Effective demand
A want backed by money and the willingness to pay
Law of demand
As a price of good or service rises, the quantity demanded will fall
Substitutes
Goods that can be used in place of one another
Complements
Goods which tend to be used jointly
Factors of demand
PASIFIC - population, advertising, substitutes, income, fashion, interest rates, compliments
Supply
Willingness and ability for producers to produce a good at a given price over a given period of time
Law of supply
A higher quantity of a good will be supplied at a higher price
Factors of supply
PINTSWC - productivity, indirect taxes, number of firms, technology, subsidies, weather, costs
Market equilibrium
when quantity demanded equals quantity supplied
Price below equilibrium (shortage)
households will desire more but firms will not be prepared to offer as much leading to excess demand
Price above equilibrium (surplus)
people will want fewer cars while firms will be only too happy to supply more leading to excess supply
Consumer surplus
the highest price consumers are willing to pay for a good minus the price actually paid
Producer surplus
the price received by firms for selling their good minus the lowest price that they are willing to accept to produce the good
Marginal cost
the cost of producing one extra unit of output
