supply-demand Flashcards
Define demand
quantity of a good / service that a consumer is both willing and able to buy at each possible price during a given period of time, ceteris paribus
Define quantity demanded
amount of good that a consumer is willing and able to buy at a given price over a given period of time
Individual demand vs market demand
individual – demand of one comsumer
market – sum of all <individual> demands of all the consumers in the market</individual>
[D] Determinants -price
price of good itself (quantity demanded – movement along the same demand curve)
Law of demand
in a given period of time, the quantity of a good demanded is inversely related to its price, ceteris paribus
[D]determinants -non price factors : EXCEPTION OF FUTURE PRICES
If consumers know the price of goods will increase in future, ceteris paribus, the current demand for good will increase (eg Daiso $2)
Why? Cuz they want to maximise their utility within their given budget and want to avoid paying higher for the same good in future
Exception: perishable goods (fruits & veg)
[D]determinants -non price factors : GOV POLICIES
control-and-command measures: improve/reduce access to specific goods directly ( raising/lowering the legal age of alcohol)
altering credit conditions measures: improve/reduce access to specific goods (rules on the use of credit cards)
[D]determinants -non price factors : Y : LEVEL & DISTRIBUTION OF INCOME
Consumer income rise -> ability to buy rise -> increase demand (as rational utility maximisers) «normal good»
Exception: inferior good. inferior to rich but normal to poor. consumer income rise –> decrease demand
[D]determinants -non price factors : PRICE AND AVAILABILITY OF SUBSTITUTES
Substitutes (COMPETITVE DEMAND)
meaning: pair of goods considered by consumers to be alternatives to each other with the level of utility derived being similar
- when price of one falls, as rational utility maximisers, will switch to the other so quantity demanded for other increase
- when more types of the good available– quantity demanded of the good decrease
Complementary (JOINT DEMAND)
meaning: pair of goods consumed together to satisfy the same want
-when price increase, the other good also increase
-both goods i want
(DERIVED DEMAND)
-Demand for one good occurs as a result of demand for another (demand of steel occurs as a result of demand for cars)
-only one out of the 2 goods i want
(COMPOSITE DEMAND)
-demand for good has multiple uses
[D]determinants -non price factors : TASTE AND PREFERENCES
more desirable the good is, the more they demand at any given price to maximise their utility (advertisement)
[D]determinants -non price factors : OTHERS
Change in demography of population (size/distribution)
festive seasons
Define supply
quantity of good/service that a producer is both willing and able to sell at each possible price during a given period of time, ceteris paribus
define quantity supplied
amount of a good that a producer is both willing and able to sell at a given price during a given period of time, ceteris paribus
Individual supply vs market supply
individual – supply of one producer
market – sum of all <individual> supply of all the producers in the market</individual>
[S]determinants -price
Price – price of good itself (quantity supplied – movement along the same supply curve)
[S]determinants -non price factors : GOV POLICIES
Indirect tax
meaning: levy imposed by the gov to increase marginal cost of production (immediate effect)
Subsidy
meaning: provision of money and other resources by gov to support person/business activity
-Indirect subsidies – decrease marginal cost of production
Directives, Legislation, extend financing schemes to firms, technicalsupport
[S]determinants -non price factors : EXPECTATION OF FUTURE PRICES
If price of good expected to rise, producers can temporarily hold back amount goods release into market to sell at higher price in future. Current supply falls cuz unwilling to supply at current time.
[S]determinants -non price factors : RELATIVE GOODS
(JOINT SUPPLY)
meaning: more production of one leads to more production of the other (slaughter more cow for meat and leather)
when price of meat increases, profit-maximising firms will kill more in respond and simultaneously increase supply of leather into market
(COMPETITITVE SUPPLY)
meaning: increase production of one leads to diverting resources away from producing the other (same source but can produce diff kind of goods
[S]determinants -non price factors : MARGINAL GOODS
Marginal cost of good rises, firms reduce supply to avoid marginal losses. vice versa to increase marginal profits
Price of factor outputs (wages, raw material prices..) – change cost of producing an additional unit of good
Technology (automation, better management practices) – improvement in scientific knowledge and organizational changes lowers MC of production relative to marginal revenue
[S]determinants -non price factors : SELLERS (no.)
could be due to supernormal profits thus no. of sellers increases = more competition = market supply increase
[S]determinants -non price factors : OTHERS
Unpredicted events (weather, natural disaster, industrial dispute, political unrest)
Law of supply
quantity supplied is direct related to its price in a given period of time, ceterius paribus
