Chapter 7 - Demand and Supply curves

Price mechanism

the means of allocating resources in a market economy

Consumers

Individuals or households who buy good or services for their own use or for others

market

where buyers and sellers get together to trade

demand

The quantity of a product consumers are willing and able to buy at different prices per period of time ceteris paribus

supple

The quantity of product producers are willing and able to sell at different prices per period of time ceteris paribus

Supply Chain

All the stages of a product’s progress from raw materials, production and distribution until it reaches the consumer

Notional Demand

Where buyers may want to buy a product but which is not always backed by the ability to pay

Effective demand

demand that is supported by the ability to pay

Demand curve

a line plotted on a graph that represents the relationship between the quantity demanded and the price of a product

Market Demand

the total amount demanded by consumers

demand schedule

the data from which a demand curve is drawn on the graph

Law of demand

The Law of Demand states that the relationship between the price and demand of a good or service is inversely proportional.

An increase in price would lead to a decrease in the quantity demanded and vice versa

movement along the demand curve

Shows how the quantity demanded responds to a change in price

Factors that affect demand:

* Income
* The price and the availability of related products (Complements and Substitutes)
* Fashion tastes and attitudes

normal goods

Goods for which the quantity demanded increases as income rises

inferior goods

Where the quantity demanded increases as income falls

Substitute

An alternative good

complement

a good consumed with another

joint demand

when two goods are consumed together

Subsidies

direct payments made by governments to producers of goods and services

Law of Supply

The Law of Supply states that the relationship between the price and supply of a good or service is proportional.

An increase in price would lead to a increase in the quantity supply and vice versa

Factors affecting Supply

1) Cost of Production

2) Size and nature of the industry

3) The change in price of other products

4) Government Policy

subsidies

direct payments made by governments to producers of goods and services

indirect tax

indirect tax: A tax levied on goods and services such as a general sales tax

Extension of demand or supply

Increase in in the quantity demanded or supply as a result of a change in price