Markets, Demand & Supply Flashcards
What are markets, buyers and sellers?
A market is a place where buyers and sellers go to exchange G/S.
Buyers demand goods.
Seller supply goods.
What is the difference between notional and effective demand?
Notional - the desire from a product
Effective - when the desire is backed by the ability to pay for it (actually effects market)
What is demand?
The quantity of a product that consumers are wiling and able to buy at a given price over time.
What is individual and market demand?
Individual - demand we place on a product at each price. (value that consumers place on a product)
Market - everyone’s individual demand
What is the law of demand?
As price rises, demand contracts.
As price falls, demand extends.
Changes in price causes movement along the curve.
Non price factors shift the curve.
What are 6 non-price factors affecting demand?
£ of substitutes/ complements, consumer tastes, consumer income, seasonal factors, legislation, advertising.
What is supply?
The quantity of a product that firms are wiling and able to sell at a given price over time.
What is the law of supply?
As price rises, supply extends
As price falls, supply extends
Firms supply more at high prices due to higher profit motives.
What are 4 non-price factors affecting supply?
Cost of production, taxes and subsidies, new firms in the market, supply shocks (natural disasters)
What is market equilibrium?
Where demand = supply, here there is an equilibrium price and quantity
If price is too high, excess supply
If price is too low, excess demand
What happens to price and quantity when demand shifts?
More demand - price and quantity increases
Less demand - price and quantity decreases
What happens to price and quantity when supply shifts?
More supply - price falls, quantity increases
Less supply - price rises, quantity decreases
What is consumer surplus and how is it shown on the graph?
Difference between the price consumers are willing and able to pay and what they actually pay.
Area under demand curve, above the price.
What is producer surplus and how is it shown on the graph?
Difference between the price producers are willing and able to sell and what they actually get.
Area above supply curve, below the price.
What happens to consumer and producer surplus as supply and demand shifts?
When S and D increase, CS and PS also increase (and vice versa)
