Topic 3 - Markets Flashcards
Factors affecting demand include:
Price, income, population, tastes, prices of substitutes and complements, expected
future prices
What are the four type of markets?
- Perfect Competition
- Monopolistic Competition
- Monopoly
- Oligopoly
What factors can cause an increase or decrease in the supply curve?
- Changes in Technology
- Changes in the price of other goods and services
- Climatic and Seasonal Influences
- Changes in producer expectations
- Changes in the preferences of producers
What is demand?
Quantity of goods and services that consumers are willing and able to purchase
What does price elasticity of supply measure?
The responsiveness of the quantity supplied of a product to a change in price.
> The more ‘elastic’, the greater its response to a change in price
What is supply?
Quantity of goods and services that firms and industry(s) are willing and able to offer for sale at a given price
What is a simple definition of a monopolistic competition?
A monopolistic competition is a large number of firms, which sell products different from the other competitors.
What are some examples of market failure:
● Negative externalities eg. air pollution)
● Merit goods (eg. healthcare, education)
● Public goods (eg. police, parks)
Define ceretis paribus
“all other things being equal”
what does price ceiling lead to?
Price ceiling leads to market disequilibrium because it creates a shortage of supply as there is an increase in demand but a decrease in supply due to low price.
What is the law of demand?
The quantity demanded by consumers falls as the price of the good/service rises
What is the law of supply
The quantity of good/services supplied is direct with price
What is pure competition?
a marketing situation in which there are a large number of sellers of a product which cannot be differentiated and, thus, no one firm has a significant influence on price.
Substitute goods are:
A good that consumers choose to buy instead of another good (e.g butter and margarine)
Complement goods are:
A good that is used in conjunction with another good (e.g petrol and cars)
Explain the contraction and expansion of demand
When an increase in the price of a good or service causes a decrease in quantity demanded. Shown by an upward movement on the demand curve.
Expansion is the opposite, where a decrease in the price of a good or service causes an increase in quantity demanded. Shown by a downward movement on the demand curve
What is unit elastic demand?
A proportional response to a price change, where the amount spent by consumers remains unchanged.
Explain inelastic demand.
A weak response to price changes.
Define Oligopoly (T)
A state of limited competition, in which a market is shared by a small number of producers/sellers.
For example; Apple and Samsung
When does market failure occur?
When the interaction of supply and demand in a market leads to an outcome that is not optimal in the economy.
What is the price mechanism?
The interaction between supply and demand to determine prices in the market
What is the product market?
It is the interaction of demand and supply of the outputs of production (g+s)
What is the factor market
Is the market for any input into the production process (labour, land etc)
