Price Mechanism Flashcards
Determinants of Demand for Labour (4)
1 Demand for final product
2 Productivity of Labour
3 Technology
4 Price and availability of sub input
Determinants of Supply for Labour (2)
1 Number of qualified people
2 Non wage component
Reasons for Wage Differentials (3)
1 Labour immobility
2 Non-Monetary factors
3 Imperfect information
Define Utility
Utility refers to the satisfaction(benefit) that consumers get from consuming a good/service
Define Marginal Utility
Marginal Utility is the additional satisfaction that consumers derive from consuming an additional unit of a good
Define Price Mechanism
The use of price signals to allocate scarce resources among competing uses is known as the price mechanism
Define Demand
Demand is the amount of a good or service that consumers are both willing and able to buy at each possible price in a given period of time, c.p
Define Quantity Demanded
Quantity demanded refers to a particular quantity that the consumer is willing and able to buy at a particular price, as reflected by a point on a given demand curve
State the Law of Demand
The law of demand states that in a given time period, the quantity demanded of a product is inversely related to its price, c.p
Define Individual Demand
Individual Demand is the demand of one consumer
Define Market Demand
Market demand is the sum of the individual demand schedules of all consumers in the market
Non Price Determinants of Demand(6)
1 weather/seasonal factors
2 expectations of producers
3 technology
4 price of related goods + population size
5 income of consumers + ease of borrowing
6 government policies
7 number of sellers
Define Normal Goods and Inferior Goods
Normal goods are goods whose demand varies directly with consumer’s income
Inferior goods are goods whose demand varies inversely with consumers’ income
Define substitutes and complements
Substitutes in consumption are goods that can be used in place of one another for the satisfaction of a particular want
Complements in consumption are goods used in conjunction with one another in the satisfaction of a particular want
Define Derived Demand
Derived demand is the demand for a factor of production that results from the demand for a final good
Define Supply
Supply is defined as the amount of a good or service that producers are both willing and able to sell at each possible price in a given period of time, c.p
Define Quantity Supplied
Quantity supplied refers to a particular quantity offered for sale at a particular price, as reflected by a point on a given supply curve
State the Law of Supply
The law of supply states that in a given time period, the quantity supplied of a product is directly related to its price, c.p
(4_Define Law of Diminishing Marginal Utility
the LDMU states that beyond a certain point of consumption, as more and more units of a good or service are consumed, the additional utility derived from each additional unit consumed falls
Reasons for the Law of Supply (2)
1 Firms are profit motivated
2 Higher prices increase the ability to supply a good or service pg22
Define Individual Supply and Market supply
An individual supply refers to the supply of one producer
Market supply is the sum of the individual supply schedules of all the producers in the market
Non Price Determinants of Supply(7)
Weather conditions
Expectations of producers
Technology
Price of related goods
Input prices
Government policies
number of Sellers
Competitive supply
Goods that are in competitive supply are those that use similar resources for production
Joint supply
Goods in joint supply are goods that are also produced when the other is produced
Define a Market
A market can be defined as an arrangement whereby buyers and sellers can negotiate to exchange good, services or factors of production at an agreed price
Define Market Equilibrium
Market equilibrium is when quantity demanded equals quantity supplied. It is at a state of rest where there is no tendency for any change
Define Consumer Surplus
Consumer surplus is the difference between the maximum amount consumers are willing and able to pay for a good or service and the amount actually paid for it
Define Producer Surplus
Producer surplus is the difference between the amount producers actually receive for a good or service and the minimum amount they are willing and able to accept for it
Define Wage Rate
Wage rate is defined as the compensation for labor per period of time
Define Wages
Wages are the total payments for the services rendered by labour
Define PED
PED measure the degree of responsiveness of quantity demanded of a good to a change in its price, c.p
PED = 0
Perfectly price inelastic demand
PED < 1
Price inealstic demand
PED > 1
Price elastic demand
PED = 1
Demand is unitary price elastic- a change in price leads to a proportional change in qd, c.p
PED = infinity
Demand is perfectly price elastics
Determinants of PED(4)
Time period
Proportion of income spent on good
Degree of necessity
Degree and availability of substitutes
Determinants of PES(4)
Time period
Availability of spare capacity and stocks
Mobility of FOP
Perishability of goods
Define YED
The income elasticity of demand measures the degree of responsiveness of demand for a good, to a change in consumers’ income, c.p
