T1 - Introducing the Market Flashcards
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Effective demand
The quantity that consumers are willing to buy at the current market price.
What is demand when price is low?
Low as well, price and demand go together (contraction : smaller, expansion : bigger)
Where does the demand curve shift in contraction?
Left
Where does the demand curve shift in expansion?
Right
Factors determining demand? (7)
Taste Advertising and branding Complementary goods Distribution of income Population Price
Determinants of supply
Costs of production Price of product State of technology Taxes and subsidies Entry and exit of rims
Consumer sovereignty
Consumer decides what is produced and allocation of resources, indicators for businesses
Excess supply
More supply than demanded
Excess demand
More demand than supplied
Market price
where supply and demand intersect
Equilibrium
No excess between supply and demand
Profit signalling mechanism
Price changes attract new entrants where there is potential for profit
Market
Medium where buyers and sellers exchange goods and services competitively
Price mechanism key parts
Signalling: price signals
Rationing: only those able and willing to pay
Incentives: profitability for firm, value for consumer
Price mechanism definition
‘invisible hand’ guides resources towards production of what consumers buy
Mass market
homogeneous, large quantities, used by most
Niche market
specialised segments, particular needs/preferences
Why are markets dynamic? (main reason)
changing technology (creative destruction)
Resource allocation
- Resource owners want profit so sell to highest bidder
- Firm’s revenue used to bid for resource
- Revenue depends on what consumers pay
- What consumers pay depends on satisfaction they get
- Consumers pay more for more satisfaction
- Firms offering most satisfaction bid most, buy and use scarce resource
