Business Economics - Demand and Supply Flashcards

Vocabulary flashcards based on Unit 1 (Demand and Supply) lecture notes covering foundational definitions, economics terms, classifications of demand, and demand functions.

Economic Activity

Any activity which is related to earning of the money and spending of the money.

Firms

The production units in an economy that buy factors of production (such as machines, labour, raw materials) to produce and sell goods and services to maximize profits.

Households

The consumption units in an economy that try to maximize satisfaction from their consumption of goods produced by firms.

Business Economics

As defined by Spencer and Siegelman, the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management.

Decision Making

The process of evaluating all available alternatives based on collected information and choosing the most efficient course of action to attain a desired end.

Equilibrium Price

The market price where the quantity of goods supplied is equal to the quantity of goods demanded.

Capital Budgeting

An official procedure or investment appraisal process used by firms for assessing and planning expenditure on fixed/durable assets in return for an estimated flow of benefits in the long run.

Demand

A consumer's desire to have a good or service which is supported by the capacity (ability) and willingness to pay at a given price and during a given period of time.

Law of Demand

An economic rule stating that people will buy more at lower prices and buy less at higher prices, if other things remain the same ($\text{ceteris paribus}$).

Elasticity of Demand

The percentage change in demand relative to corresponding changes in one or more variables, given by the formula: $\text{Elasticity of Demand} = \frac{\text{Percentage change in Demand}}{\text{Percentage Change in Price}}$.

Giffen Goods

Inferior goods without close substitutes on which consumers spend a large part of their income, where demand falls when their price falls, resulting in a positively sloped demand curve.

Veblen Goods

Expensive status-symbol commodities (like diamonds or air-conditioned cars) for which consumer preference increases as price increases, as higher prices confer greater status.

Direct Demand

Demand for final consumer goods (like food items and readymade garments) that satisfy human wants directly.

Derived Demand

Demand for producer goods (like industrial raw materials and machine tools) that are needed for the further production of other goods.

Joint Demand

Demand for two or more goods that must be consumed together to provide a given level of satisfaction, such as cars and fuel.

Composite Demand

Demand for a single good that has multiple purposes and satisfies different needs, such as power or electricity.

Competitive Demand

Demand for substitute products competing for sales, where an increase in demand for one product leads to a decrease in demand for its competitor.

Complementary Demand

Demand occurring when two products are jointly necessary to satisfy one demand, where a change in demand for one causes a similar change in demand for the other.

Cross Demand

A collective term for both competitive demand and complementary demand.

New Demand

Demand for a commodity purchased for the purpose of making an addition to existing stock.

Replacement Demand

Demand for a commodity purchased to maintain existing capital/assets and overcome depreciation.

Individual Demand Function

The mathematical function representing the relationship between individual quantity demanded and factors influencing it, expressed as $D_x = f(P_x, P_r, Y, T, F)$.

Market Demand Function

The functional relationship between total market demand and factors influencing it, expressed as $D_x = f(P_x, P_r, Y, T, F, P_o, S, D)$.

Linear Demand Function

A demand function where the slope of the demand curve remains constant throughout its length, expressed as $D_x = a - b P_x$.