Micro 1.2 Flashcards
What is demand?
the quantity of a good or service that consumers are willing and able to buy at a given price in a given period of time
What is supply?
the quantity of a good or service that a business are willing and able to sell at a given price in a given period of time
What is the equilibrium price?
the price at which demand for a good or service equals the supply
What is effective demand?
A desire for a good or service backed up by the ability to pay
What is market demand?
The quantity of a good or a service that all the consumers in a market are willing and able to buy at different market prices
What is the basic law of demand?
The basic law of demand is that demand varies inversely with price
What is the income effect?
A fall in price increases the real purchasing power of consumers
What is the substitution effect?
A fall in the price of a good makes it relatively cheaper compared to its substitutes
What is utility?
The measure of satisfaction that we get from purchasing and consuming a good or service
What is total utility?
The total satisfaction from a given level of consumption
What is marginal utility?
The change in satisfaction from consuming an extra unit
What is derived demand?
The demand for a factor of production used to produce another good or service
What is composite demand?
When a good has more than one use and a increase in the demand for one product leads to a fall in the supply available of the other
What is a normal good?
A good for which demand increases as income rises
What is an inferior good?
A good for which demand decreases as income rises
What is joint demand?
When you need two or more goods because they work together to provide benefit for a consumer
What is competitive demand?
The demand for products which have close substitutes
What is the basic law of supply?
The basic law of supply is that as the price of a product rises businesses will expand supply to the market
What is joint supply?
Where the increase or decrease in the supply of one good leads to an increase or decrease in the supply of a by-product
What is consumer surplus?
The difference between a consumer is willing to pay vs what they have to pay
What is producer surplus?
The difference between the market price and the price which they are willing to supply
What is the market clearing price?
The intersection of supply and demand
What is a direct tax?
A tax that are paid directly by an individual or business to the government
What type of tax is an income tax, corporation tax and capital gains tax?
A direct tax
What is an indirect tax?
A tax imposed on producers by the government
What type of tax is a duties tax?
An indirect tax
Why might government impose an indirect tax?
To reduce the consumption or production of a good
Why do businesses want to push tax onto the consumers?
To reduce the costs of production
What does the ultimate incidence of tax depend on?
The PED and PES
