Demand Flashcards
What is meant by demand
A quantity of a product or Service that consumers are willing and able to buy at a given price over a period of time
What is the relationship between demand for a good and its price
If the price changes then the demand with also change. Decrease in price leads to an increase in demand
Other then an price what other factors determine demand for good and services
- Changes in real income
- changes in population
- trends/ tastes
- demand for other good (substitutes or complements)
-expectations of changes in price and availability
-Celebration/ seasons ( Christmas)
What is a substitute
Two alternative goods that could be used for the same purpose
What happens if the price of a substitute falls
The demand for the good falls as the demand for the substitute has increased
What is a complements
Goods that are used together (shirt and tie)
What happens if the demand for a complement increases
The demand for the good also increases
How is revenue calculated
Price pre unit x quantity sold = total revenue
What is utility
It’s a measure of the satisfaction that we get from purchasing and consuming a good or service
What is total utility
The total satisfaction from a given level of consumption
What is marginal utility
The change in satisfaction from consuming an extra unit
How is marginal utility measured
Difference in total utilities/ change in quantity consume
What is the law of diminishing marginal utility
Utility isn’t constant. Often we get diminishing marginal utility. AS QUANTITY CONSUMED INCREASES THE MARGINAL UTILITY DERIVED FROM EACH EXTRA UNIT DECREASES e.g. the first cookie is more enjoyable than the next which is more enjoyable then the next etc.
Why would marginal utility become negative
Because consuming one extra unit is now causing dissatisfaction.
Where is total utility maximised
When marginal utility is equal to 0 (the highest part of the graph before it starts to decrease)
How will a rational consumer maximise utility when there is a price involved
They with consumes up until marginal utility is equal to the price (£2 for a coffee consuming until the marginal utility is less then £2)
What is supply
The quantity of a good or service that a producer is willing to supply onto the market at a given price in a given time period
What is the basic law of supply
As the market price of a commodity rises the producers expand their supply to the market
What does a supply curve show
A relationship between price and quantity that a firm is willing and able to sell
Why do supply curves slope upward
-rising prices acts as a incentive for firms to expand supply and achieve higher profits
- increased outputs leads to increased cost so the price also increases
What factors cause a shift in supply
- changes in production costs
- taxes and subsidies
-climatic conditions
-changes in production technologies
-changes in the number of producers on the market - changes in the price of substitutes in production
Which way does the supply curve shift when there is an increase in supply
Shifts to the right
Which way does the supply curve shift when there is a decrease in supply
Shifts to the left
What is equilibrium price
When buyers and sellers come together in a market place and a price is struck
