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C3

Terms in this set (50)

Markets
Bring buyers and sellers together to exchange goods and services
Demand reflects the
wishes of consumers
Supply reflects the
wishes of producers
Assumptions for markets used in microeconomics
1) perfect competition
2) consumers and producers are price takers
3) demand and supply curves assume other things remain equal (ceteris paribus), none of the determinants bar price change
perfect competition
the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.
price taker
a buyer or seller that is unable to affect the market price
Law of Demand
consumers buy more of a good when its price decreases and less when its price increases
Why does the quantity demanded fall when price rises?
1) income effect - people feel poorer, the purchasing power of their income has fallen
2) substitution effect - Good costs more than alternative goods, so people switch to these
income effect
the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power
substitution effect
the change in quantity demanded because of the change in the relative price of the product, compared to alternatives which consumers will switch to/move away from depending if it is a price rise or fall
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
A demand schedule can be represented on a
demand curve
demand curve
a graph of the relationship between the price of a good and the quantity demanded
Shape of a normal demand curve
slops downwards left to right
A movement along the demand curve shows
change in quantity demanded
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