Competitive markets: demand and supply Flashcards Preview

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Flashcards in Competitive markets: demand and supply Deck (20)
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1

Demand

Quantity of a commodity that consumers are willing and able to purchase at a given period of time at a given price

2

Effective demand

A want backed by money and the willingness to pay

3

Law of demand

As a price of good or service rises, the quantity demanded will fall

4

Substitutes

Goods that can be used in place of one another

5

Complements

Goods which tend to be used jointly

6

Factors of demand

PASIFIC - population, advertising, substitutes, income, fashion, interest rates, compliments

7

Supply

Willingness and ability for producers to produce a good at a given price over a given period of time

8

Law of supply

A higher quantity of a good will be supplied at a higher price

9

Factors of supply

PINTSWC - productivity, indirect taxes, number of firms, technology, subsidies, weather, costs

10

Market equilibrium

when quantity demanded equals quantity supplied

11

Price below equilibrium (shortage)

households will desire more but firms will not be prepared to offer as much leading to excess demand

12

Price above equilibrium (surplus)

people will want fewer cars while firms will be only too happy to supply more leading to excess supply

13

Consumer surplus

the highest price consumers are willing to pay for a good minus the price actually paid

14

Producer surplus

the price received by firms for selling their good minus the lowest price that they are willing to accept to produce the good

15

Marginal cost

the cost of producing one extra unit of output

16

Social surplus

the sum of consumer plus producer surplus (maximised at S=D)

17

Productive efficiency

goods and services must be made using the least possible resources and at the minimum possible cost.

18

Allocative efficiency

allocating right amount of scarce resources to the production of the right product.

19

Dynamic efficiency

productive efficiency of a firm over a period of time (supernormal profit necessary).

20

X-efficiency

production with no waste