Unit 1 - Demand, Supply and Markets Flashcards
What is demand?
Demand is the quantity of a good or service that consumers are willing to buy at a given price in a given time period.
What is effective demand?
the actual quantity of a good or service that consumers are willing and able to buy at a particular price in a certain period of time.
Know how to draw demand curves from demand schedules.
Use notes and jotter.
Why is the demand curve downward sloping?
-The law of diminishing marginal utility
-The substitution effect
-The income effect
What is the substitution effect?
The substitution effect is when a consumer consumes more of another product because of a price rise.
The substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rise
What is utility?
Utility is the satisfaction that someone gains from consuming a good or service.
What is total utility?
This is the total satisfaction you get from consuming a certain number of units of a good or service.
What is marginal utility?
Marginal utility is the extra satisfaction gained from consuming consecutive units of a good or service.
What is diminishing marginal utility?
Diminishing Marginal utility is the diminishing satisfaction gained from consuming consecutive units of a good or service. (the more of an item that you use or consume, the less satisfaction you get from each additional unit consumed or used.)
Be able to draw/use demand diagrams to explain how changes in the determinants of demand affect price and quantity demanded
Look at notes and at jotter.
What is a substitute good or service?
goods and services that are similar. For example, if the price of one chocolate rose then the demand for another brand, that has not risen in price will increase.
What is a complementary good or service?
one that goes along with another good or service. For example, strawberries and cream, if the price of strawberries fell then the demand for cream would increase.
What does it mean if the demand curve shifts outwards?
this means that at all prices consumers demand more of a good or a service. (Shift right)
What does it mean if the demand curve shifts inwards?
this means that at all prices consumers demand less of a good or a service (Shift left)
What does the income effect describe?
how changes to consumers real income level can affect their purchasing patterns.
Why does the income effect occur?
because as the price of a good rises, it means the consumers income buys them less units of any product. This means that their purchasing power, the amount that their money buys them, has fallen. This again explains why as price rises, quantity demanded falls.
If the price of a good decreases then people will buy more, this is shown by a movement along the demand curve. What is this referred to by?
an extension in demand
PRICE NEVER CAUSES A SHIFT, ONLY A MOVEMENT
If the price of a good increases then people will buy less, this is shown by a movement along the demand curve. What is this referred to by?
a contraction in demand
PRICE NEVER CAUSES A SHIFT, ONLY A MOVEMENT
What are some factors that shift the demand curve?(9)
Population, Advertising, The price of subsitute goods and services, incomes, fashion and trends, interest rates, the price of complementary goods and services, the weather, expectations
What is supply?
The amount of goods or services that producers are willing and able to sell at a given price. THIS IS NOT OUTPUT
Be able to draw supply curves from supply schedules
Look at jotter and notes.
Describe the relationship between supply and price.
A positive correlation between supply and price exists.
Why does the supply curve slope upwards?
-The profit motive, when the market price rises following an increase in their output.
-New entrants coming into the market, higher prices may create an incentive for other businesses to enter the market leading to an increase in total supply.
-Production and costs, when output expands, a firms production costs tend to rise, therefore a higher price is needed to cover these extra costs of production.
What does it cause if the supply curve shifts outwards?
it causes an increase in supply at all prices
What does it cause if the supply curve shifts inwards?
it causes a decrease in supply at all prices
What is productivity?
the amount produced per unit input in a period of time.
What are some determinants of supply?
Costs of production, changes in production technology, tax, subsidy, weather/climate conditions.
Be able to draw supply diagrams to explain how changes in the determinants of supply affect price and quantity supplied
Look at notes and jotter.
What is a market?
a market is where buyers and sellers of a good or service come together to exchange their good or service for an agreed price.
What are some different types of market?
technology, food, clothes, jewellery etc etc
Be able to draw a demand and supply diagram to describe how equilibrium price and quantity are set
Look at notes and jotter.
Be able draw a demand and supply diagram to describe how shortage and surplus situations (excess demand and excess supply) are returned to equilibrium, ie market clearing
Look at notes and jotter.
Be able to draw a demand and supply diagram to describe how changes in the determinants of demand and/or supply affect equilibrium price and quantity
Look at notes and jotter.
