Demand/Supply- Equilibrium - Chapter 2 (R) Flashcards
Definition: Demand
Is the desire, willingness and ability to purchase
What is the Law of Demand
The law of demand holds that other things equal, as the price of a good or service rises, its quantity demanded falls.
What is the relationship of Law of demand
The law of Demand is an inverse relationship between P&Q (Price and Quantity)
What are the non-price factors affecting demand
- Substitutes
- Population
- Income
- Tastes/preferences
- Expected Future Prices
- Complimentary
Definition: Income
Is the Consumers ability to pay
Definition: Population
Increase in population means an increase in consumers(increase in demand) While a decrease in population is opposite (decrease in demand)
Definition: Taste And Preferences
Preferences and tastes explain why consumers prefer a product over its alternatives. So, when their preferences and tastes change, it also affects their demand for it.
Definition: Prices of Substitutes and Compliments
Two goods substitute each other because they fulfil the same need. So, when consumers need to choose one they will most likely go for the substitute because its cheaper
Definition: Expected Future Prices
This is when the consumer doesn’t buy at the current price but focuses on future trends and price changes (black Friday sales)
The two demand curves are…
- Individual
- Market
Definition: Movement
A movement is a change in price
A movement up the demand curve is a ….
Contraction
A movement down the demand curve is a….
Expansion
Increase = Contraction and …
Decrease = Expansion
What are the two changes in non-price of demand
Increasing = up (out)
Decreasing= down (in)
(in the graph when there is two lines of supply this is what means what)
Definition: Supply
- Quantity available in the market to be sold
- Desire to maximise profits
- Involves incentives
Law of supply
Holds that other things equal, as the price of good rises, its quantity supplied will rise, and vice versa
What is the quantity supplied?
the amount of the good that producers plan to sell at a particular price
Why do producers produce more output when the price rises?
To make a profit because they can cover the increasing cost of production as they can produce.
What are the non price factors affecting supply
- Cost of Production
- Expected future prices
- Number of suppliers
- Technology
- Events affecting the availability of resources and the supply chain
OR
G government regulations and taxes
E expectations
S sellers (no. of)
T technology
I inputs (cost of)
P prices of other goods
Definition: Cost of Production
When land, labour and capital costs are large, then the cost of producing goods increases also. This means that suppliers will reduce their level of supply (output) as the cost to make the goods has risen.
Definition: Expected Future Prices
The expectations of businesses regarding the price of goods will affect how much they supply.
Definition: Number of Suppliers
If there is a large number of businesses and sellers within a market, then the level of output and supply will increase.
Definition: Technology
Technology is seen as more efficient, therefore allowing producers to increase their output and cut labour costs. An increase in the level of technology or capital machinery used within a business means that the quantity supplied will increase.
What are the two changes in non-price of supply?
Decrease= Up
Increase= down
(in the graph when there are two lines of supply this is what means what)
The Concept of Market Equilibrium
A market is in equilibrium if at the market price the quantity demanded is equal to the quantity supplied.
The concepts of Market clearing
The market clearing price is the price at which the demand for a good by consumers is equal to the number of goods that can be produced at that price.
Definition: Surplus
Quantity supplied is more than (signal) quantity demanded. Price goes down →flexibility
Occurs when a good/service is priced too high
In order, to eliminate surplus producers will lower the price in order to increase the demand until they can clear the market
Definition: Shortage
Quantity supplied is less than(signal) quantity demanded price goes up → flexibility
