The allocation of resources Flashcards
Chapter 2
Demand
The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period
Supply
Refers to the quantity of output that the producers are willing and able to offer for sale at different price in a given time period of time
Microeconomics
The study of the economic behavior of households and firms and the performance of individual markets
Macroeconomics
The study of the whole economy
3 key questions
What to produce?
How to produce?
For whom to produce?
Price mechanism
Decision according to the market equilibrium
Factors that affect demand
- advertisement
- government policies
- consumers taste
- consumers income
- price of substitutes
- interest rate
Individual demand
demand of one individual or firm
Market demand
aggregate (total) of all individual demand
Factors that affect supply
- cost of FOP
- prices of other goods
- global factors
- technology advancement
- business optimism
Individual supply
supply of an individual producer
Market supply
aggregate of the supply of all firms in the market
Market equilibrium
when the supply & demand are equal to the economy
Price elastic demand (PED)
the responsiveness of demand to a change in price
Factors that affect PED
- number of substitutes
- time period
- proportion of income
- necessity of products
