1.2 how markets work

Rationality

Making choices logically, aiming for the best possible outcome

Utility

The satisfaction or benefit a consumer gets from a good or service

rational decision making

Making choices that lead to the best possible outcome based on available information

Habitual behaviour

Actions repeated so often they become automatic, often without concious thought

Social influence

How the actions and opinions of others affect our own choices

Inertia

The tendency of individuals, firms, or even entire economies to stick with their current state or behaviour, even when presented with new info or better alternatives

Demand

The quantity of a good or service that consumers are willing and able to buy at different prices over a period of time

Demand curve

A graph showing the relationship between the price of a good and the quantity demand

Shift on the curve

A change in demand due to factors other than the goods own price

Movement along the curve

A change in quantity demanded due to a change in the goods own price

demand slope

Demand is downwards sloping as there is an inverse relationship between price and how much is demanded

Factors that cause a shift in demand

Change in consumer income

Number of buyers

Advertising

Total utility

The total satisfaction from a given level of consumption

Marginal utility

The change in satisfaction from consuming an extra unit

Derived demand

The demand for a factor of production which is used to produce another good or service

Price elasticity of demand

Shows how much the quantity demanded changes when the price changes

Income elasticity of demand

Shows how much the quantity demanded changes when consumer income changes

Cross price elasticity

Shows how much the demand for one good changes when the price of another good changes