MICRO L3 - Supply and Demand Flashcards
1
Q
define demand
A
how much buyers can and want to purchase a good/service
2
Q
define supply
A
how much sellers can and want to produce a good/service
3
Q
what does each firm aim to do
A
- maximise profits
- π = TR − TC = unit price × quantity − total costs
4
Q
what do individuals seek
A
- maximum satisfaction (utility)
- they gain utility from consuming goods/services
5
Q
what is income effect
A
- people feel poorer so they cannot buy as much with their fixed income
6
Q
what is substitution effect
A
- people change their consumption to similar but rival products
7
Q
what is the law of demand
A
the quantity demanded increases as the price decreases
8
Q
causes of shifts in demand
A
- income
- substitutes
- complements
- consumer taste
- number of buyers
- expectations of future
9
Q
what is scale effects
A
A firm’s costs rise as it produces more:
Their production methods are less productive than before
10
Q
what is entry effects
A
High cost firms enter the market:
They can make a profit due to the higher price
11
Q
causes of shifts in supply
A
- input prices
- technology
- random shocks
- number of sellers
