Price, Supply and Demand Flashcards
Definition
Medium through which buyers and sellers come together to exchange goods and services
Types of Market
Goods
Factor - factors of products e.g land
Commodity - raw materials
Financial
B2B & B2C
B2B - Business to business
B2C - Business to consmumer
Demand
The extent to which consumers are willing and able to buy a good or service at any given price over a set period
Demand Curve
Usually slopes down. Movements along the curve are extensions and contractions.
Extension
Increase in demand where the price falls
Contraction
Decrease in demand where the price falls
Utility
Consumers want to maximise utility - the measurement of the amount of satisfaction a consumer gets from consuming a given good or service
Opportunity Cost
Inverse relationship between price and supply creates opportunity cost - the amount an individual has to give up to buy a good or service
Individual vs. Aggregate
Individual = demand for a specific product at one company Aggregate = demand for one product at any given price level in the whole market
Factors Affecting Demand
Price changes move you along the curve, changes in the factors move the curve left for a decrease and right for an increase
Factors Influencing Demand
Levels of Income
Market expectations (if price is expected to change in near future)
Size of the population
Competitor prices
Factors affecting market preferences (fashion, taste, if a good is inferior/normal)
Types of Good
Normal - demand increases as income does
Inferior - demand increases as income falls
Substitute - does the same job as another
Complimentary - usually bought with another
Total Consumer Expenditure
Price x quantity demanded
Giffen and Veblen Goods
Giffen - staple goods with no subs, if prices increase, even if price goes up, consumers have to buy them
Veblen - luxury/exclusive goods, for which demand increase as price does
Supply
The extent to which companies are willing and able to supply a product at any given price over a set time period
Demand Curve
Slopes upwards. As price increases, supply does too. Movements along curve are extensions and contractions
Profit per Unit
Price per unit - cost per unit
Individual vs. Aggregate
Individual = supply from one supplier Aggregate = supply from the whole market
Aggregate Supply
Companies leaving or joining the market and current suppliers increasing or decreasing production will affect aggregate supply
Factors Affecting Supply
Changes in factors affecting supply will move the curve right or left. Left is an increase, right is a decrease in supply.
Factors Affecting Supply
Costs associated with making the good/service
Price or costs of producing substitutes
Market expectations
Number of competitors
Technological changes
Climate/weather
Equilibrium Price
The price at which market supply and demand are balanced.
Excess Supply
Where the price is higher than the equilibrium so there’s more supply than demand
Excess Demand
Where the price is lower than the equilibrium so there’s more supply than demand
