Factors influencing demand and supply in product markets Flashcards
What is the main objectives of firms?
Profit
What is the main objectives of consumers?
Low costs for goods/services
What is a market?
The supply and demand for a specific good/service
What does the demand curve show?
the relationship between the price of a good and the quantity of it that consumers are willing and able to purchase at a given price
What is the income effect?
If the price of something decreases then there is more disposable income (YD) to buy more of it.
What is the substitution effect?
If the price of good A falls below that of its competitors then centens paribus (all things being equal) the customer will switch to purchase good A instead.
What is utility theory?
The benefit a consumer gains from consuming a good
What is the law of diminishing marginal utility?
The first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts.
When do you use PACIFICS and what does it stand for?
Factors that cause an increase/decrease in the quantity consumers are willing and able to purchase at a given price level.
Population, Advertising, Cost of switching, Income (disposable), Fashion and taste, Income tax, Complements, Substitutes
What is the supply curve?
It represents the quantity a producer is willing to sell of their goods/services at any given price.
Why does the supply curve slope upwards?
The profit incentive: price of a product increases, businesses have more of an incentive to supply more of that good.
New entrants: Higher prices may create incentives for other businesses to enter the market.
What are the factors that shift the supply curve?
Productivity, Indirect taxes, Number of firms, Technology, Subsidies, Weather, Cost of production
Why does the demand curve slope downwards?
When price falls the quantity demanded will rise. Consumers are more willing and able to purchase the good/service at a lower cost.
