Micro - Demand Flashcards
What is a market
A Market is any arrangement by which buyers and sellers come together to exchange goods and services which are scarce and can be therefore be priced
What is a free market
It is one that is free from government interference or intervention
What do free markets operate on
The basis of demand and supply
What causes quantity to change when prices move
Income effect, Less able
Substitution effect, Less willing
What is demand
It is the quantity of a good or service that consumers are wiling and able to buy at any particular price`
What is a contraction
It is the increase in price which causes the decrease in quantity
What is a extension
It is the lowering of a price which then increases the quantity
What factors affect demand
Income of consumers
Price of substitutions
Price of complements
tastes and preferences
Population size and structure
cost and availability of credit
What does ceteris paribus mean
That all the other factors that affect demand are unchanged
What is a movement on a demand curve
It is the point moving up and down the curve
What causes movement
Change in price of the good/service itself
What is the effect of a movement
A change in quantity demanded
What is a shift
The movement of the whole demand curve
What causes a shift
A change in any other factors
What is the effect of a shift
A change in demand at all prices
What are substitutes
Goods that are in competition
Two goods/services in competitive demand
What are complements
Goods that are bought together
Two goods and services in joint demand
What is Revenue
It is the income by a firm from the sale of its output
Formula for Total Revenue
= price per unit x numbers of unit sold
How to know whether you should change prices
As long as extra revenue earned from loyal customers who continue to purchase the good is greater than the revenue lost from those customers who no longer purchase then TR rises
What is Profit
The extra money earned after subtracting revenue from costs
What are the types of demand
Individual
Market
Joint
Competitive
Derived
Composite
Exceptional
What is individual demand
The quantity of a good or service that an individual consumer is willing and able to buy at different prices
What is Market demand
The total quantity of a good or service bought by all consumers in a particular market at different prices
What is joint demand
When two goods are bought together as complements
What is competitive demand
When two goods are rivals or substitutes for consumer spending
What is derived demand
When the demand for a factor of production is the direct result of the demand for the output it produces
What is composite demand
When the demand for a factor of production is composed of multiple different areas of individual demand
what is exceptional demand
When/if the demand for a good defies the law of demand so that price and demand are positively related
