How Markets Work? Flashcards
What is a market?
Where buyers and sellers interact
What 3 people allocates resources?
Government
Firms
Consumers
What are the features of a competitive market?
- No one seller has much market power
- If one seller increases prices, consumers will switch to rival seller
- Resources move quickly and smoothly
- There is a lot of buyers and sellers
What are 4 things that the government provide in the UK?
Healthcare, education, parks, libraries
What are the two groups of economic agents that affect the allocation of resources in markets?
Firms
Consumers
What is demand?
Quantity of a good or service that consumers are willing to get at a certain price
What factors influence demand for goods and services?
Promotion, price, population, taste, fashion trends, scarcity, income levels, law, weather conditions, changes in quality, complementary prices, future prices.
What is a substitute?
A good that can be used in place of another
E.g Coke and pepsi
If demand of one increases demand for the other decreases.
What are complements?
Products used together
E.g Phone and apps or petrol and cars
Demand for one increases, demand for other increases
What is composite demand?
Goods that have more than one use.
E.g milk used for cheese and yogurt or land used for buildings and crops
Increase in demand for one product leads to a fall in the supply of another
What is derived demand?
Demand for a product x might be strongly linked to the demand for a related product y. Giving rise to the idea of derived demand.
E.g cotton for clothes or potatoes for chips
Demand for finished products increase means demand for resources increase.
What are normal goods?
More is demanded as income rises, less is demanded if income falls
E.g clothes and food
What are inferior goods?
Cheaper poorer quality substitutes for some other goods.
If income increases less inferior goods are demanded.
E.g bus tickets
What are Griffen goods?
Increase in price leads to an increase in demand
E.g Bread, rice, potatoes
What are veblen goods?
People demand it more because it’s expensive
Snob effect
E.g designer goods, yacht, cars
Demand increases as the price increases due to its exclusive nature and appeal as a status symbol.
What causes a movement along the demand curve?
Changes in price of the good or service
What causes a shift in the demand curve?
Changes in income, preferences, other factors
What does a contraction in demand mean?
Higher price, lower quantity
What does an extension in demand mean?
Lower price, higher quantity
What does a shift to right and left on demand curve mean?
Right= increase in demand
Left= decrease in demand
What is the law of demand?
That as price declines, the quantity demanded expands and that as price increases the quantity demanded contracts.
