Lecture 2 Flashcards
What are the three key components of demand?
Desire, ability, and willingness to buy a product or service.
What transforms desire into demand?
When desire is backed by purchasing power and the willingness to buy, it becomes demand.
What is the difference between desired and actual purchase?
Desired purchase refers to the quantity the consumer wishes to buy, while actual purchase is the quantity actually bought.
How is quantity demanded considered in terms of time?
Quantity demanded is always measured over a period of time, such as per day or per week.
What is a static model in economic analysis?
A model where demand and supply depend on current prices, without considering time dynamics.
What is the difference between a static and dynamic economic model?
In a dynamic model, variables are dated, and a time lag exists between changes in prices and demand or supply.
What are the key determinants of demand?
Price of the commodity, consumer income, prices of related goods (complements and substitutes), and consumer tastes.
How does income affect demand for normal and inferior goods?
For normal goods, an increase in income leads to higher demand; for inferior goods, an increase in income leads to lower demand.
What is the law of demand?
When the price of a commodity increases, the quantity demanded decreases, and vice versa.
How do substitute and complementary goods affect demand?
An increase in the price of a substitute increases demand for the commodity, while an increase in the price of a complement decreases demand.
What are the additional factors that determine market demand?
Size of the population and income distribution among consumers.
What is technical efficiency?
The ratio of system output to system input in a business process.
What is economic efficiency?
The ratio of system worth (annual revenue) to system cost (annual expenses).
Why must economic efficiency be more than 100% for business survival?
Because businesses need to generate more revenue than the total costs incurred to remain profitable.
