TOPIC 1 - MARKETS Flashcards
WHAT ARE THE FUNCTIONS OF MONEY?
MEDIUM OF EXCHANGE
STORE OF VALUE
MEASURE OF VALUE ( UNIT OF ACCOUNT)
MEANS OF DEFERRED PAYMENTS
WHAT IS MEDIUM OF EXCHANGE?
CAN EXCHANGE RATHER THAN SWAP PRODUCTS
WHAT IS UNIT OF ACCOUNT?
WAY OF COMPARING VALUES
WHAT IS STORE OF VALUE?
MONEY CAN BE SAVED AND USED LATER
WHAT DOES MEANS OF DEFERRED PAYMENTS?
POSSIBLE TO PAY LATER FOR PRODUCTS E.G LOANS
WHAT IS DEMAND?
DEMAND IS THE QUANTITY OF A GOOD OR SERVICE THAT A CONSUMER IS WILLING AND ABLE TO BUY AT ANY GIVEN PRICE OVER A PERIOD OF TIME.
WHY DOES THE DEMAND CURVE SLOPE DOWNWARDS?
INCOME EFFECT
SUBSTITUTION EFFECT
DIMINISHING MARGINAL UTILITY
WHAT IS THE SUBSTITUTION EFFECT?
IF PRICE OF A GOOD INCREASES, CONSUMERS ARE MORE LIKELY TO BUY CHEAPER ALTERNATIVES.
WHAT IS THE INCOME EFFECT?
IF THE PRICE OF A GOOD INCREASES, CONSUMERS WON’T BE ABLE TO AFFORD IT AND HENCE CONSUMERS WON’T PAY AS MUCH.
WHAT IS DIMINISHING MARGINAL UTILITY?
AS YOU CONSUME MORE OF A PRODUCT, AMOUNT OF SATISFATION PRODUCED BY EACH ADDITIONAL UNIT OF THAT GOOD DECLINES.
WHAT ARE EXCEPTIONS TO EXPLANATIONS AS TO WHY DEMAND CURVES ARE DOWNWARD SLOPING? (extra)
VEBLEN GOODS
GIFFEN GOODS
ASYMETRIC INFORMATION
PANIC BUYING
SPECULATION
WHAT IS A VEBLEN GOOD? (extra)
HIGH STATUS ITEM WHICH PEOPLE WANT BECAUSE THEY ARE EXPENSIVE AND THEREFORE EXCLUSIVE.
THEY ARE AN EXCEPTION TO CONSUMER SURPLUS RULE.
EXAMPLE= ROLEX WATCH
WHAT IS A GIFFEN GOOD? (extra)
A GOOD THAT HAS NO CLOSE SUBSTITUES, IS ESSENTIAL AND IS INFERIOR TO OTHER
DEMAND GOES UP IF PRICE GOES UP BECAUSE PEOPLE CANNOT AFFORD MORE EXPENSIVE VERSIONS OF THE PRODUCT SO MUST BUY THE INFERIOR PRODUCT
EXAMPLE= BUDGET RICE
WHAT IS ASYMETRIC INFORMATION?
(extra)
WHEN YOU CAN’T ASCERTAIN THE QUALITY OF A PRODUCT, A HIGHER PRICE MAY INDICATE QUALITY.
WHAT IS CONSUMER SURPLUS?
DIFFERENCE BETWEEN HOW MUCH BUYERS ARE PREPARED TO PAY FOR A GOOD AND WHAT THEY ACTUALLY PAY.
