How markets work Flashcards
what are markets
where consumers and producers come into contact with each other to exchange goods and services
what is utility
the amount of satisfaction obtained from consuming a good or service
what is rational decision making
where consumers allocate their expenditure on goods and services to maximise utility, and producers allocate their resources to maximise profits.
what is demand
the quantity of a good or service purchased at a given price over a given time period
what is demand curve
shows the quantity of a good or service that would be bought over a range of different price levels in a given period of time
what is marginal utility
the utility or satisfaction obtained from consuming one extra unit of a good or service
what is diminishing marginal utility
as successive units of a good are consumed, the utility gained from each extra unit will fall
why does the demand curve slope downwards from left to right
due to the law of demand
what causes a movement along a demand curve for a good
a change in the price of the good or service
what causes a shift in the demand curve for a good
-income
-tastes and preference
-expectations
-number of buyers
what is formula for PED
% change in quantity demanded of good
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% change in price of good
what is total revenue
price per unit of a good multiplied by the quantity sold
why might price elasticity of demand e useful to firms
-revenue forecasts
-investment decisions
-competitor analysis
-pricing strategy
why might price elasticity of demand be useful to the government
-taxation policy
-inflation control
-economic planning
what is marginal revenue
revenue gained by a firm from selling one extra unit of output
what is income elasticity of demand
the responsiveness of demand for a good or service to a change in real income
what is a normal good
a good with a positiive income elasticity of demand.
what is a inferior good
a good with a negative income elasticity of demand
Formula for YED
% change in demand for good
_________________________________
% change in real income
formula for XED
% change in demand for good B
_________________________________
% change in price of good A
what is cross elasticity of demand
the responsiveness of demand for good B to a change in price of good A
what are substitute goods
good that are in competitive demand e.g a rise in coffee price may increase demand for tea
what are complementary goods
goods that are joint in demand e.g a fall in price of tennis rackets may cause an increase in demand for tennis balls
what are unrelated goods
have an XED value of 0 e.g an increase in the price of cars will have no effect uppon the demand for potatos
what is supply
supply is quantity of a good or serice that firms are wiling to sell at a given price
what is the supply curve
supply curve shows the quantity of a good or service that firms are willing to sell to a market over a range of different price levels
what is the formula for PES
% change in supply of a good
_______________________________
% change in price of a good
what is price elasticity of supply
PES is the responsiveness of the supply of a good or service to a change in its price
