DMU, shifts and conditions of supply and demand Flashcards
Ceteris Paribus =
all things equal
Explain Diminishing Marginal Utility
Diminishing Marginal Utility – the idea that satisfaction received from each extra unit consumed falls
Explain supply
Supply – the quantity of the good firms are willing and able to offer for sale at any given price over a period of time
Explain demand
Demand – the quantity of the good people are willing and able to buy at any given price over a period of time
Law of supply=
higher price = higher supply
Law of demand =
inverse relationship between the price of a product and demand
Conditions of demand (shifts) PIRATES
Population (larger pop higher demand), Income (more income more demand), Related goods (substitutes or complements), Advertising (incr consumer loyalty incr demand), Tastes and preferences, Expectations (shares), Seasons (tourism, food, ice-cream)
Conditions of supply (movement)
decrease in price extension of demand, increase in price contraction of quantity demanded
Explain why the demand curve slopes downwards
The demand curve slopes downwards because as supply increases, consumption of a product will increase. This increase in consumption causes marginal utility to diminish which in turn causes a decrease in demand for a product and thus a decrease in the demand curve as the supply curve increases
The engel curve shows that
the poorer the household the larger the proportion of its budget dedicated to nourishment
Define derived demand
demand for one good is linked to the demand for a related good (bricks and houses)
Joint demand
when goods are bought together such as camera and memory card
Composite demand
when the good demanded has more than one use (milk (more cheese less butter))
Conditions of supply (shifts) PINTSWC
Productivity (higher outward shift as average costs for firm fall), Indirect tax (inward shift), Number of firms (larger supply as more firms), Technology (outward shift), Subsidies (outward), Weather, Cost of production (labour costs, capital, fuel, tax, materials, rent inward shift)
Conditions of supply (movement)
A decrease in price causes a contraction of supply; an increase in price causes a extension of supply
Joint supply
increasing the supply of one good causes increase or decrease in supply of another good i.e. lamb/wool, beef/leather
Why is supply upwards sloping
Supply is upwards sloping because if price increases it is more profitable for firms to supply the good so supply increases
•A movement outwards along a curve =
Extension
•A movement inwards along a curve =
Contraction
•A movement of the whole curve outwards
increase
A movement of the whole curve inwards =
decrease
Micro axis’
p and q
Normal goods
Demand increases when income increases
Inferior goods
Demand decreases when consumer income increases
Notional demand
the desire of people for a good even if they do not have adequate funds to purchase it
Effective demand
ability to pay as well as desire to buy a good or service
Derived demand
demand that arises or is defined indirectly for some other demand or underlying behaviour
