Suppy & Demand Flashcards
1
Q
Demand
A
- quantity of goods/services that consumers are able and willing to buy at a given price during a given time period
- price changes cause movement (expansion/contraction) along both the supply & demand curve
- inward demand shift = lower Q of goods demanded at market price (vice versa)
2
Q
Demand 2
A
- PIRATE = Population, Income, Related goods, Advertising, Tastes & Environment (reasons for demand shift)
- ^ these factors avoid ceteris paribus
- income affects the type of goods being demanded i.e. normal or inferior goods due to consumers’ “purchasing power”
3
Q
Supply
A
- quantity of goods/services that producers are able and willing to sell at a given price during a given time period
- profit seeking firms have an incentive to produce more at higher prices
- high prices encourage new firms to enter market as it seems profitable
4
Q
Supply 2
A
- outward supply shift = higher Q of goods is supplied at market price (vice versa)
- PINTSWC = Productivity, Indirect Tax, No. of firms, Technology, Subsidies, Weather & Cost of Production
- weather is for agricultural supply
- market supply = individual supply of firms added together
5
Q
Utility Theory
A
- consumers aim to maximise utility
- firms aim to maximise profits
- the D curve is downward sloping because of ‘diminishing marginal utility’
- consumers are willing to pay less for extra units as satisfaction decreases
- it’s assumed that economic agents only act in their own interests
6
Q
Utility Theory 2
A
- incentives not given properly lead to misallocated resources
- entrepreneurs innovate to reduce production costs
- firms can use intuition to make decisions
- rational decisions take longer to decide
- ^ impractical in firms w time constraints
- “thinking at the margin” allows consumers to plan future
7
Q
Market Equilibrium
A
- where price has no tendency to change
- ^ aka. ‘market clearing price’
- excess D (shortage) = points below EQ.
- ^ this pushes prices up and causes firms to supply more
- excess S (surplus) = points above EQ.
- ^ this pushes price down and causes firms to lower prices
- shortages and surpluses are examples of disequilibrium
8
Q
Market Equilibrium 2
A
- equilibrium is ‘allocative efficiency’
- curve shifts due to ‘PIRATES’ or ‘PINTSWC’ lead to new market EQs
- ‘free market’ = a market with no government intervention
- the free market system is what pushes price towards equilibrium
- changes in one market are likely to affect other markets
9
Q
Types of Supply & Demand
A
- Joint S = increasing supply of one good causes an increase/decrease in the supply of another good
- Joint D = goods bought together
- ^ when demand for one increases, demand for the other also increases
- Derived D = demand for a good that’s a necessity to produce another good (consequential demand)
- Composite D = demand for a good with multiple uses
- ^ a rise in demand for one uses reduces the supply for other uses
10
Q
Price Mechanisms (ISRA)
A
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Incentive
-
Signalling
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Rationing
-
Allocating
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