Unit 2 microeconomics - supply & demand Flashcards
What is a market? Types?
A specific location where buyers and sellers meet to exchange goods and services.
Perfect competitive = impossible to attain irl. Identical products sold. Prices are determined by supply and demand - companies can’t control prices. Complete information about prices and products available to all buyers. Low or no barriers to entry or exit.
Imperfectly competitive = common. Unique products/services. Prices aren’t set by supply and demand. Competition. High barriers to entry and exit.
What is supply?
Specific amount of goods/services producers are willing to sell at certain price level over a period of time.
Law of supply: when price of a good rises, quantity demanded will rise. Positive relationship. Curve upwards.
What is demand?
Consumer’s desire to purchase goods/services and willingness to pay a price for a specific good/service.
Law of demand: when price rises, demand falls. Negative relationship. Demand curve downwards sloping.
Factors that shift the supply curve
Changes in weather (favorable and unfavorable)
Input prices
Price of related goods
Technology
Number of firms
Expected price
Factors that shift the demand curve
Income
Wealth
Prices of related goods
Population
Expected price
Tastes
What is market equilibrium?
Market condition where market demand is equal to market supply.
Consumer surplus
Highest price consumers are willing to pay for a good minus price actually paid.
Producer surplus
Price received by firms for selling products minus lowest they’re willing to produce goods at.
The law of diminishing marginal utility
As additional products are consumed, utility gained from the next unit is lower than the utility gained from the previous unit.
Marginal utility is the additional utility (satisfaction) gained from the consumption of an additional product.
Lowering price makes it more attractive proposition for consumer to keep consuming additional units - there is
a movement down the demand curve.
