topic 1 - the market Flashcards
what is a market
a market is where buyers and sellers come together to trade goods and services
why do economists use models
models are simplified versions of reality that help explain how markets work
exogenous variables
factors outside the model (e.g., weather for farming)
endogenous variables
factors the model tries to explain (e.g., price of goods)
optimization principles
people male the best choices they can afford (choosing snacks that give you the most joy for £10)
equilibrium principle
prices adjust until what people want to buy equals what’s available to sell (if too many people want apples at £2 prices rise until only some can afford)
demand curve
shows the relationship between price and how much people want to buy
reservation price
max price someone is willing to pay
market demand curve
add up of everyones demand at different prices, with many buyers the curve is smoother
supply curve
shows the relationship between price and how much sellers are willing to supply, higher prices - more sellers willing to supply
market equilbiirum
equilibrium happens where the demand curve meets the supply curve (price at which buyers and sellers are both happy, no one has a reason to change)
discriminating monopolist
charges each renter their reservation price
ordinary monopolist
sets a single price
rent control
government sets a max rent (price ceiling)
