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31 Cards in this Set
- Front
- Back
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Demand |
Quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. |
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Effective demand |
Demand in economics must be effective. Only when a consumers' desire to buy a product is backed up by an ability to pay for it do we speak of demand. |
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Market demand |
Market demand is the sum of the individualdemand for a product from buyers in the market. If more buyers enter the market and they have the ability to pay for items on sale, then market demand at each price level will rise. |
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Individual demand |
Individual demand is the demand of one individual consumer in the market for a good or service. |
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Changes in demand |
A term used in economics to describe that there has been a change, or shift in, a market's total demand. This is represented graphically in a price vs. quantity plane, and is a result of more/less entrants into the market, and the changing of consumer preferences. The shift can either be parallel or nonparallel. A parallel shift in demand means that there is no change in the elasticity of demand for the given market, but a nonparallel shift means there has been a change in elasticity. |
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Shifts in demand |
The position of the demand curve will shift to the left or right following a change in anunderlying determinant of demand. Increases in demand are shown by a shift to the right in the demand curve. This could be caused by a number of factors, including a rise in income, a rise in the price of a substitute or a fall in the price of a complement. |
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Complementary goods |
Two complements are said to be in joint demand. Examples include: fish and chips, DVD players and DVDs, iron ore and steel. |
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Substitute goods |
Goods in competitive demand and act as replacements for another product. |
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Normal goods |
Normal goods have a positive income elasticity of demand. Necessities have an income elasticity of demand of between 0 and +1. Luxuries have income elasticity > +1 demand rises more than proportionate to a change in income |
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Inferior goods |
When demand for a product falls as real incomes increases. |
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Composite demand |
Where goods or services have more than one use so that an increase in the demand for one product leads to a fall in supply of the other. E.g. milk which can be used for cheese, yoghurts, cream, butter and other products. If more milk is used for manufacturing cheese, ceteris paribus there is less available for butter. Another example is when demand for bricks increases for use in both house building and factory building |
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Derived demand |
The demand for a product X might be strongly linked to the demand for a related product Y - giving rise to the idea of a derived demand. |
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Elasticity of demand |
Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price, ceteris paribus. |
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Price elasticity |
Price elasticity of demand measures the responsiveness of demand for a product following a change in its own price. |
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Types of price elasticity |
1. Perfectly Elastic Demand Demand is said to be perfectly elastic if negligible change in price would lead to infinite change in the quantity demanded. Visibly, no change in price causes in infinite change in demand.
2. Perfectly Inelastic Demand When the demand for a commodity does not change despite change in price, the demand is said to be perfectly inelastic.
3. Unitary Elastic Demand When the percentage change in the quantity demanded is equal to the percentage change in price, the demand for a commodity is said to be unitary elastic demand. For example, 10% change in price causes 10% change in demand.
4. Relatively Elastic Demand When the percentage change in the quantity demanded for a commodity is more than percentage change in price, it is called relatively elastic demand. For example, if 10% change in price results, 20% change in quantity demanded.
5. Relatively Inelastic Demand When the percentage change in the quantity demanded of a commodity is less than percentage change in the price, it is called relatively inelastic demand. For example, when 20% change in price causes 10% change in demand. |
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Income elasticity of demand |
Measures the relationship between a change in quantity demanded and a change in real income. The formula for income elasticity is: percentage change in quantity demanded divided by the percentage change in income. |
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Cross elasticity of demand |
Responsiveness of demand for good X following a change in the price of good Y (a related good). With cross price elasticity we make an important distinction between substitute products and complementary goods and services. |
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Supply |
Quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period. |
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Market supply |
Market supply is the total amount of an item producers are willing and able to sell at different prices, over a given period of time egg one month. Industry, a market supply curve is the horizontal summation of all each individual firm’s supply curves. |
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Changes in supply |
A term used in economics to describe when the suppliers of a given good or service have altered their production or output. A change in supply can be brought on by new technologies, making production more efficient and less expensive, or by a change in the number of competitors in the market. |
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Shifts in supply |
The position of a supply curve will change following a change in one or more of theunderlying determinants of supply. For example, a change in costs, such as a change in labour or raw material costs, will shift the position of the supply curve. |
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Joint supply |
Joint supply describes a situation where an increase or decrease in the supply of one good leads to an increase or decrease in supply of another by-product. For example an expansion in the volume of beef production will lead to a rising market supply of beef hides. A contraction in supply of lamb will reduce the supply of wool. |
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Elasticity of supply and its types |
Price elasticity of supply measures the relationship between change in quantity supplied and a change in price. |
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Goods markets |
Products that are purchased for consumption by the average consumer. Alternatively called final goods, consumer goods are the end result of production and manufacturing and are what a consumer will see on the store shelf. Clothing, food, automobiles and jewelry are all examples of consumer goods. Basic materials such as copper are not considered consumer goods because they must be transformed into usable products. |
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Factor markets |
In economics, a factor market refers to markets where services of the factors of production (not the actual factors of production) are bought and sold, such as the labor markets, the capital market, the market for raw materials, and the market for management or entrepreneurial resources. |
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Market equilibrium |
Equilibrium means a state of equality between demand and supply. Without a shift in demand and/or supply there will be no change in market price. Prices where demand and supply are out of balance are termed points of disequilibrium. |
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Equilibrium price |
The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded in a market. This is the point at which the demand and supply curves in a market intersect. |
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Excess demand |
The difference between the quantity supplied and the higher quantity demanded when price is set below the equilibrium price. This will result in queuing and an upward pressure on price |
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Excess supply |
When supply is greater than demand and there are unsold goods in the market. Surpluses put downward pressure on the market price. |
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Incentive |
Incentives matter enormously in any study of microeconomics, markets and market failure. For competitive markets to work efficiently economic agents (i.e. consumers and producers) must respond to price signals in the market. |
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Rationing or allocative function and signalling function of the price |
Use-limiting and conserving function of price: higher the price the less a good will be consumed or used, and more it will be conserved (rationed). |
