The Price System and the Microeconomy

These flashcards cover key terms and concepts related to the price system and microeconomy for AS Level economics.

Effective Demand

Demand for a product that is backed by the ability and willingness to pay for it.

Law of Demand

A law which states that there is an inverse relationship between the quantity demanded of a product and the price of the product, ceteris paribus.

Demand Curve

A curve that shows how much of a good or service will be demanded by consumers at a given price in a given period of time.

Supply Curve

A curve that shows how much of a good or service will be supplied by producers at a given price in a given period of time.

Extension in Demand

When the quantity demanded of a product increases as a result of a fall in the price of the product, shown by a movement down the demand curve.

Contraction in Demand

When the quantity demanded of a product decreases as a result of a rise in the price of the product, shown by a movement up the demand curve.

Change in Supply

A shift in the supply curve due to changes in non-price determinants such as production costs or technology.

Normal Good

A good for which the demand rises with an increase in income.

Inferior Good

A good for which the demand falls with an increase in income.

Substitutes

Two goods are said to be substitutes if consumers regard them as alternatives; demand for one good rises if the price of the other good rises.

Complements

Two goods are said to be complements if they are consumed jointly; an increase in the price of one good causes the demand for the other good to fall.

Market Demand

The total demand for a particular product in the market, found by adding together the quantity demanded of each individual at a given price.

Determinants of Supply

Factors that affect the quantity supplied of a product, including costs, industry size, and government policy.

Equilibrium Price

The market price from which there is no tendency for change, at which the quantity demanded equals the quantity supplied.

Derived Demand

Demand for the components of a product or for workers that arises from demand for the final product.

Demand Schedule

A table showing the quantities sold of a product at different prices, enabling a demand curve to be drawn.