demand, supply & equilibrium Flashcards
Consumer objectives
Rational decision makers that act in ways to maximise satisfaction
Producer objectives
Rational decision makers that act in ways to maximise welfare.
Positive statements
Objective statements that can be tested.
Normative statements
Value judgements that are subjective and opinionated.
What causes PPF to shift outwards
TREE
Technology, Resources, Efficiency, Education
What causes PPF to shift inwards
WWR
War, Weather, Resource depletion
Why is the demand curve downward sloping
Income effect
Substitutional effect
Diminishing marginal utility
Derived demand
Goods demanded for the production of other goods.
Composite demand
Goods demanded for two or more distinct uses.
Latent demand
Willing to pay but not able to afford.
Velden good
As price increases, so does demand.
Non-price factors affecting demand
P opulation
A dvertising
S ubstitutes
I ncome
F ashion
I nterest rates
C omplimentary good prices
Non-price factors affecting supply
Productivity
Indirect taxes
Number of firms
Techonology
Subsidies
Price of related goods
Weather
Cost of production
How does excess demand / supply affect the market?
(ACRONYM)
Allocating scarce resource
Rationing excess demand / supply
Signalling price too low or high
Incentives to raise / lower price
Market mechanism
A Market system where supply and demand determines the price and quantity of goods supplied, and work to shift disequilibrium to market equilibrium
