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
