Lesson 3 and 4 Flashcards
is the value of goods and the cost of making the goods.
- it is determined by the interaction of the forces of supply and demand.
Price
is associated with consumption and is represented by buyers or consumers.
Demand
is associated with production and is represented by sellers or producers.
Supply
This refers to the willingness of the buyers to buy the product given price, time and place.
Demand
- There is an element of purchasing power, this means you have the capability to buy the product or service.
Demand
shows the inverse relationship between price and quantity demanded.
Demand schedule
The law states that, “If price increases quantity demanded decreases. If price decreases quantity demanded increases.”
Law of demand
when price of product increases consumers will able to buy less within a
given money income.
Income effect
when the price of the product rises consumers shift their
purchases to other products whose price are relatively lowe
Substitution effect
this refers to a movement of the demand curve itself, indicating changes in quantities bought at each price.
Change in demand
this means if quantity demanded increases the demand curve will shift to the right and if quantity demanded decreases the demand curve will shift to the left at its price
Change in demand
refers to the movement along a given demand curve caused by change in price.
Change in quantity demanded
people buy more goods and services when their income increases
Income
more people means more demand for goods and services.
Population
demand for goods and services increases when people likes it or prefer it.
Taste and preferences
if price is expected to increase in basic commodities consumers will have panic
buying.
Price expectation
when price of certain product increases buyers tend to buy substitute
product.
Price of related goods
the theory is only true and correct if the assumption of ceteris paribus is applied, which means all other things are equal or constant.
Validity of the law of demand
these are commodities whose demand varies directly with money
supply (ex. Appliances; jewelry).
Superior/Normal goods
these are goods whose demand varies inversely with money income (ex. Used
clothing; second hand cars).
Inferior goods
the price of one good and the demand for the other are directly related (ex.
Coke & Pepsi; Ariel & Surf laundry powder soap)
Substitute goods
these are goods that go together and that they are jointly demanded.
The price of one good and the demand for the other are inversely related (ex. Car and gasoline; mobile phone and battery).
Complimentary goods
these are goods which are not related at all (ex. Bread and nails; paper and glass).
Independent goods
refers to the willingness of the seller or producer to sell or produce the product at a given price, time and place.
Supply
shows the direct relationship between price and quantity.
Supply schedule
The law states that, “If price increases quantity supply increases. If price decreases quantity supply decreases.”
Law of supply
refers to the movement of the supply curve indicating changes in quantity bought at each price.
Change in supply
refers to the movement along the supply curve caused by the change in price.
Changing quantity supplied
this refers to the techniques or methods of production, which increases supply of
goods.
Technology
this refers to raw materials, labor and the like. Thus, an increase of these
increase the cost of production and decrease of quantity supplied.
Cost of production
more sellers means more supply and vice versa.
Number of sellers
changes in the price of goods affect the supply of such goods. An increase of
price of one good, decreases its quantity supplied and increases the quantity supplied of its
substitute product.
Prices of other goods
if producers expect prices to rise very soon, they usually keep their goods and
then release them in the market when the prices are already high.
Price expectations
this creates artificial shortage due to hoarding.
Brace expectations
quantity supplied decreases before the increase of price and it will increase (quantity supplied) during the increase of price.
Price expectations
taxes increase cost of production and it discourages production because it reduces the earnings of businessmen
Tax and subsidies
subsidies reduce cost of production so it induces the farmers to produce more.
Taxes and subsidies
- in the market supply and demand interact freely.
Law of supply and demand
- sellers are willing to sell at a higher price which results to surplus of goods.
Law of supply and demand
- to sell the surplus goods sellers will reduce their price.
Law of supply and demand
- buyers are willing to purchase at a lower price which results to shortage of goods.
Law of supply and demand
- if shortage of goods happen buyers are willing to get the higher price to get the available goods.
Law of supply and demand
is a situation where quantity supplied is equal to quantity demanded.
Equilibrium price
- it means both seller and buyer have mutual agreement.
Equilibrium price
- in the process of interaction between buyers and sellers price tend to move towards the equilibrium price.
Equilibrium price
The law states that, “When supply is greater than demand price decreases. When demand is greater than supply price increases. When supply is equal to demand price remains constant.”
Statement of the law of Supply and demand
indicates the extent to which changes in price or other factors cause changes in the quantity demanded. Mankiw (2018) explains the three classifications of demand elasticity: price elasticity of demand, income elasticity of demand, and cross elasticity of demand.
Demand elasticity
refers to the reactions or responses of the buyers to changes in the price of goods and services. There is five price elasticity of demand: elastic demand, inelastic demand, unitary demand, perfectly elastic demand, and perfectly inelastic demand. This classification helps understand how sellers use price elasticity in their pricing decisions (Manapat and Pedrosa, 2014):
Price elasticity of demand
where a change in price results in a greater change in quantity demanded. Buyers are very sensitive to price change. Such products are not crucial to buyers. These are luxury goods.
Elastic demand
where a change in price results in a lesser change in quantity demanded. Buyers are not sensitive to price change. Products under this category are essential to buyers like basic commodities.
Inelastic demand
is when a change in price results in an equal change in quantity demanded. Goods under this category are considered semi-essential or semi- luxury goods.
Unitary demand
