Definitions (Chapter 1-2) Flashcards
Demand
refers to the quantity of a product that buyers are willing and able to buy at various prices in a period of time, ceteris paribus
Consumer seeks to maximise?
his utility (i.e. satisfaction)
Individual Demand
reflects the quantity demanded (Qdd) for a good by an individual consumer at different prices
Market Demand
refers to the combined demand of all individual consumers in the market for a good
Law of Diminishing Marginal Utility
explains that as more units of a good are consumed, additional units will provide less additional satisfaction utility than previous units, even though total utility increases.
Law of Demand
states that over a given time period, ceteris paribus, the quantity demanded of a good is inversely related to its price.
Quantity Demanded
refers to a point on the demand curve that shows a specific quantity demanded at a specific price in a given time period
Income
is the sum of all forms of earnings received by a household in a given period of time –> affects the purchasing power of household and its ability to purchase goods and services.
Normal Good
goods for which demand will increase when income increases (+ve rs)
Inferior Good
goods for which demand will decrease when income increases (-ve rs)
substitutes
goods that satisfy a similar want and can thus serve as replacements for one another
complements
goods that are consumed together
credit
refers to a method of paying for goods or services at a later time, usually paying interest as well as the original amount
exchange rate
price at which currencies are traded. it is expressed as how many units of foreign currency one unit of domestic currency can buy
Producer’s behaviour
the producer aims to maximise profit which is the difference between the total revenue he earns and total cost incurred in production.
Supply
refers to the quantities of a product that producers are willing and able to sell at various prices in a period of time, ceteris paribus
Individual Supply
a producer’s supply schedule would show the various quantities he/she is willing to supply at various price levels
market supply
the combined supply of all producers in the market for a good (it is derived by summing up the quantity supplied by each producer at each possible price.
Law of Supply
states that over a given time period, ceteris paribus, the quantity supplied of a good rises when the price of the good rises.
Productivity Level
refers to the quantity of output produced per unit of input (e.g. output per unit of labour)
Goods in Competitive Supply
goods that are produced using the same resources –> compete for the same resource (e.g. palm oil & rubber –> both need to be grown on land)
Goods in Joint Supply
goods produced jointly, one of which is usually a by-product of the other, or produced by using a different part of the same resource (e.g. beef and leather)
Market
The Institution through which buyers and sellers interact and engage in exchange. Markets are usually not regulated by governments (hence considered as free markets) although government policies can at times by implemented to influence the behaviours of buyers and sellers.
a surplus occurs when…
quantity demanded is less than quantity supplied at a given price
a shortage occurs when…
quantity demanded is more than quantity supplied at a given price
consumer surplus
the difference between what consumers are willing to pay for a good (indicated by the demand curve) and what they actually pay (i.e. current market equilibrium price). Consumer surplus is hence the gain to consumers.
deadweight loss
can be understood as the total loss of producer and consumer surplus that is not offset by a gain to anyone else in society, represented by area ABC
