Section B Flashcards
Demand=
The Quantity of a good or service that consumers choose to buy at any possible price in a given period
Law of demand=
There is an inverse relationship between QD and P
Demand curve:
Graph showing how much of a good will be demanded by consumers at any given price
Diminishing marginal utility:
Describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed
Demand curve terminology
Extension= when P goes down, QD goes up
Contraction= when P goes up, QD goes down
Non Price factors affecting demand.
Price factors cause extension/contraction, non price factors cause shift
P opulation
I ncome
C omplementary goods
T aste and preferences
S ubstitute goods
Normal good=
Inferior good=
One where the QD increases in response to an increase in consumer incomes
One where the QD decreases in response to an increase in consumer incomes
Luxury Good=
Income elasticity of demand is positive and greater than one such that as income rises, consumers spend proportionally more on the good.
Complements
Two goods are said to be complements if an increase in the price of one good causes the demand for the other good to fall
Substitutes=
Two goods are said to be substitutes if the demand for one good is likely to rise if the price if the other good rises
Consumer surplus=
Difference between the amount that consumers are willing to pay and the price that they actually pay
Marginal social benefit
The additional benefit that society gains from consuming an extra unit of good.
Consumers may take decisions that seem economically irrational, so they do not maximise their welfare e.g may not react to change in P
Possible reasons:
1) consumption habits
2) altruistic decisions
3) herding behaviour
4) impulsive buying
5) Information Problems
6) Veblen good
Supply=
The quantity of a good or service that firms choose to sell at any possible price in a given period
Firm=
An organisation that brings together FOP’s to produce output
