Micro ~ Module 2: Demand and Supply Flashcards
Define veblen goods
Consumers may view higher prices as a sign of better quality (Usually luxury goods).
Define speculative goods
When prices go up, investors may believe the prices will continue to increase and thus invest.
Define Demand (And Effective Demand)
The desire and willingness to purchase a product at a given price. (Effective demand is when you also have the ability).
Define normal goods and inferior goods
When income increases, demand for normal goods increases and demand for inferior goods decreases. And vice versa when income falls.
Define supply
Amount of product available to purchase at a given price.
Define profit incentive
If the price increases more profit can be made for each unit sold. This incentives entrepreneurs to expand production to increase profits.
Define the costs of production
The cost of all the inputs required to make a good.
Define direct tax and indirect tax
A direct tax is a tax which is paid directly from an individual to the government, e.g Income tax. Whilst an Indirect tax is a tax which is not paid directly to the government by an individual. e.g Expenditure taxes.
Define ad valorem tax and unit tax (examples of indirect taxes)
Ad Valorem tax = the tax paid at a percentage of the price of the product. (VAT rates = 20%)
Unit Tax = the same amount of tax is paid for each unit produced. (Alcohol Duty)
Define excess demand and excess supply
When there is either a higher quantity of demand over supply, or supply over demand.
Define negative equity
An asset worth less than its purchase price
Define derived demand
Demand for a good which is used in the production of another good. (Demand of one good increases, mean the demand for the other good increases as well)
Define composite demand
Demand for a good which has two uses.
Define joint supply
Supply of one good also leads to the supply of another good.
Define consumer surplus
The difference between what a consumer is willing and able to pay for a good or service and actually pay it.