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Terms in this set (40)
demand; prices of other goods substitution
substitute refers to goods that are rivalry in consumption, when prices of one good rises, consumers will purchase other goods as it is cheaper
>>an increase in the price of donut king donuts will lead to a decrease in the demand for donut king
donuts. consumers will substitute towards a more affordable good and there will be a shift left in demand from D1 to D2<<
demand; prices of other goods complementary goods
Complimentary goods are goods that go together with other goods.
>>An increase in the price doughnuts will lead to a decrease in the demand for tea shown in the shift left In demand from D1 to D2
tastes and preferences
the consumers willingness and desire to purchase a good depends on their tastes and preferences
>>if consumers tastes and preferences change toward freak shakes (they are in fashion) the demand for freak shakes will increase shifting the demand curve right from D1 to D2<<
Level of disposable income normal goods
When real
income of people rises they are able to afford more goods at any price. Normal good is defined as when people's income increases they buy more of that good.
>>As income increases consumers are more able to afford doughnut king doughnuts, Leading to an increasing demand. this is shown by the shift right from D1 to D2<<
Level of disposable income inferior goods
Inferior good is defined as when people's income increases they buy less of that good, for instance Iga doughnuts
Expectations
if people expect demand to change in the future, they may take decisions now, rather than later.
>>If consumers expect housing prices to increase in the future, they will bring forward consumption decisions and purchase now to avoid the price rise this causes them to shift right from D1 to D2<<
Population Factor
An increase in population size will increase the demand for all goods, a change in population demographic will change the demand for specific goods. for example Australia has an ageing population leading to an increase in demand for bingo shifting demand right from D1 to D2.
other factors
Advertising: As there are
advertisements campaigns which increased demand people are encouraged to purchase
>>Hismile has a wide range of ad campaigns which have increased demand for the dental product, shifting demand right from D1 to D2<<
(Supply) Prices of Other Goods joint Supply
this refers to the commodities that can be produced together, an increase in the supply of wool will increase the supply of mutton
>>an
increase in the supply of wool will result in an increase in the supply of mutton. this is due to the one resource being used for two goods. the supply of the mutton increases and supply shifts right from S1 to S2<<
(Supply) Prices of Other Goods competitive supply
this refers to products which use the same resources in their production. an increase in the supply of one would mean having to devote more
resources to that one good and hence less to the other causing the supply for that good to fall
>> an increase in the supply of rice will cause a decrease in the supply of wheat. due to one resource having alternate uses, and increase in the supply of one good, will decrease the supply of the other good this is shown by shifting supply left from S1 to S2<<
Technology
Technology is knowledge about
the techniques of production. An improvement in technology will cause the supply to increase. This is because it will lower the cost of production and producers will attain higher profits.
>>Supply increases right from S1 to S2 because of the cost of production falling<<
Prices of Resources
A firm has costs such as wages, salaries and the cost of purchasing inputs. An increase in any of these
costs will result in the firm being willing to supply less of the good at each and every price.
>>An increase in the cost of production will shift supply left from S1 to S2 as produces are less willing and able to supply Good A at every price<<
expectations of producers
Suppliers would supply more of a good at present if they expect the prices to fall in the future.
>> if producers expect
prices to fall in the future, they would increase supply now to take advantage of current prices. this is demonstrated as a shift right of the supply curve from S1 to S2<<
increase in demand (both d & s)
an increase in demand shown as a shift right in the demand curve from D1 to D2. This causes an increase in equilibrium price from P1 to P2, and an expansion in supply occurs, increasing equilibrium quantity from Q1 to Q2
decrease in demand (both d & s)
a decrease in demand shown as a shift left in the demand curve from D1 to D2. This will occur as income falls due to consumers being less willing and able to demand the good/ service. as a result equilibrium price falls from P1 to P2, and there is a contraction in supply, decreasing equilibrium quantity from Q1 to Q2
increase in supply (both d & s)
(improvement in technology) an improvement in tech will reduce costs of production and therefore lead to an increase and shift right in supply from S1 to S2 this causes equilibrium price to fall from P1 to P2 resulting in an expansion in demand and an increase in equilibrium quantity from Q1 to Q2
decrease in supply (both d & s)
an increase in the price of Good A, a cost of production for Good B suppliers, would mean suppliers are less willing to supply Good B at every price, this causes a decrease and a shift left in supply from S1 to S2. as a result the price moves from P1 to P2, there is a contraction in demand and equilibrium quantity falls from Q1 to Q2.
define demand
demand is the willingness and ability of consumers to purchase a good or a service at a given price and at a given point in time
Define the Law of Demand
the law of demand states that there is an inverse relationship between price and quantity demanded, at higher prices, less quantity is demanded.
define supply
supply is the willingness and ability of the producers to sell a good and a service at a particular price and at a particular point in time
Define Law of Supply
the law of supply states that there is a positive relationship between the price and the quantity supplied. at high prices more quantity is supplied
define market equilibrium
market equilibrium occurs when demands and suppliers come together and exchange a mutually agreeable quantity at a mutual agreeable price. the quantity demanded is equal to the quantity supplied.
Define ceteris paribus
(if) all else remains unchanged.
define tastes and preferences
the consumers willingness and desire to purchase a good depends on their tastes and preferences
define expectations
if people expect demand to change in the future, they may take decisions now, rather than later.
Define disposable income
after-tax income
define market demand
it is the summation of all individual consumers consuming Good A in the market
define market supply
when all the producers sell Good A
individual demand
how many of Good A one person is able to buy.
define individual supply
when only one producer sells Good A
define shortage
a shortage exists when the quantity demanded at Q3 is greater than the quantity supplied at Q2.
define surplus
a surplus exists when the quantity supplied at Q5 is greater than the quantity demanded at Q4.
define income effect
when the price of goods rise, it takes up a large portion of consumer income and purchasing power of income falls. consumers purchase less of that good.
define substitution effect
when the price of other goods falls in comparison, leading consumers to substitute towards the cheaper good and purchase less of the expensive good.
(demand) increase in price
an increase in the price of the good will cause a decrease in the quantity demanded. this will cause a movement up (contraction) along the demand curve. this is a contraction in the quantity demanded
(demand) decrease in price
a decrease in the price of the good will cause an increase in the quantity demanded. this will cause a movement down (expansion) the demand curve. this is an expansion in the quantity demanded.
(supply) increase in price
an increase in the price of a good will cause an increase in the quantity supplied. this will cause a movement up (expansion) the supply curve. this is an expansion in the quantity supplied
(supply) decrease in price
a decrease in the price of a good will cause a decrease in the quantity supplied. this will cause a movement down (contraction) the supply curve. this is a contraction in the quantity supplied
(simultaneous shifts) increase in demand and increase in supply
originally the market is at equilibrium (e1) when demand (d1) and supply intersect. equilibrium price is at p1 and equilibrium quantity is at q1. an increase in demand (shift right) from d1 to d2 and an increase in supply (shift right) from s1 to s2 creates a new equilibrium (e2). this causes equilibrium quantity to increase from q1 to q2. the impact on equilibrium price is indeterminate.
(simultaneous shifts) increase in demand and decrease in supply
originally the market is at equilibrium (e1) when demand (d1) and supply intersect.equilibrium price is at p1 and equilibrium quantity is at q1. An increase in demand (shift right) from d1 to d2 and An decrease in supply (shift left) from s1 to s2 creates a new equilibrium (e2). this causes equilibrium price to increase from p1 to p2. the impact on equilibrium quantity is indeterminate.
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