How markets work 1.2 Flashcards
What are the assumptions of rational decision making for consumers
Consumers aim to maximise utility - the satisfaction gained from consuming a product
What are the assumptions of rational decision making for firms
Firms aim to maximise profits
What are the assumptions of rational decision making for governments
Governments aim to maximise social welfare
What is demand
Demand is the willingness and ability to buy a particular good at a given price and at a given moment in time
Movements on the demand curve
A movement along the demand curve is caused by a change in price
for example a decrease in price causes an extension in demand and an increase in price causes a contraction in demand
Shifts of the demand curve
A change in any of the factors which affect demand, the conditions of demand
What are the conditions of demand
Population
Advertising
Substitutes
Income
Fashion
Income tax
Complements
What is diminishing marginal utility
The utility derived from the consumption of an additional unit of a good will decrease as more of the good is consumed
Does the demand curve slope upwards or downwards
Downwards as when the prices increases the quantity demanded decreases
What is supply
Supply is the ability and willingness to provide a good or service at a particular price at a given moment in time
What can cause movement on the supply curve
A change in price can cause a movement on the curve for example an increase in price can mean supply will increase and cause an extension
Also a decrease in price will lead to supply decreasing and causes a contraction on the supply curve
What does a shift in a supply curve mean
If the curve shifts to the left it means less goods or services is being produced at a given price
A right shift means more goods or services are being produced at a given price
What are the conditions of supply
Productivity
Indirect taxes
Number of firms in the market
Technology
Subsidies
Weather
Cost of production
