Demand and Supply Flashcards
What is the fundamental economic problem
We have unlimited wants but only limited resources
Why are the factors of production
Land
Labour
Capital
Enterprise
Opportunity cost definition
The cost of the next best alternative foregone
What does a command economy involve (6)
All resources owned by government
No private sector
No incentives as failing at to succeed wonβt be punished and there are no fruits of success
Equal distribution of goods/ service and income
Loss of freedom and choice
No unemployment
What does a pure market economy involve (6)
No government, resources are allocated to consumers and producers
No public sector
There is no safety net so failure is very bad and successful people prosper so there is incentive to work
Unequal distribution of incomes
Freedom and choice
Unemployment
Demand definition
Demand must be effective and supported by the money to purchase it
What is the law of demand
There is an inverse relationship between price and demand
if price rises, demand falls
What causes movement along the demand curve
Price
What causes the demand curve to shift, quantity to increase/ decrease (6)
Tastes and preferences Population Advertising Price of substitute products Price of complementary products Income
Supply definition
The quantities that producers are willing and able to offer for sale at different prices during a specified period of time.
What is the law of supply
There is a positive relationship between price and supply (if price rises, higher quantities will be supplied at lower prices)
What causes movement along the supply curve
Price
What causes the supply curve to shift
Number of producers Cost of production Efficiency of labour Costs of production increases/ decreases Tax
Equilibrium definition
The price mechanism brings together opposing factors of demand and supply snd creates an equilibrium. At this point demand equals supply and an equilibrium price and quantity sold are made
What is indirect tax and example
Tax imposed on producers
The producers can pass the burden to the consumers
E.g. VAT (value added tax)