allocation of resources

Market

an arrangement which brings buyers into contact with sellers and which includes all buyers and sellers

consumers

people who buy goods and services for their own or family’s use

firm

a business organization that produces goods and services

raw materials

basic materials used to produce goods

demand

willingness and ability to buy a product

market demand

total demand for a product

aggregation

the addition of individual units to arrive at a total amount

extension in demand

a rise in the quantity demanded caused by a fall in the price itself

contraction in demand

a fall in the quantity demanded caused by a rise in the price of a product itself

change in demand

more or less of a product being demanded at any given price, causes a shoft of the demand curve, either to the left or right

increase in demand

a rise in demand at ny given price, causes the demand curve to shift to the right

decrease in demand

a fall in demand at any given price causing the demand curve to shift to the left

normal goods

a product whose demand increases when income increases and decrease when income falls

inferior goods

a product whose demand decreases when income increases and increases when income falls

substitute

a product that can be used in place of another

complement

a product that is used together with another product

ageing population

an increase in the average age of the population

birth rate

the number of live births per 1000 of a country's population in a year

supply

the willingness and ability to buy a product

market supply

total supply of a product

extension in supply

a rise in the quantity supplied caused by a rise in the price of the product itself

contraction in supply

a fall in the quantity supplied caused by a fall in the price of the product

change in supply

changes in supply conditions causing shifts in the supply curve

increase in supply

a rise in supply at any given price causing the supply curve to shift to the right

decrease in supply

a fall in supply at any given price causing the supply curve to shift to the left

improvements in technology

advances in quality of capital goods and methods of production

tax

a payment to the government

subsidy

a payment by government to encourage the production or consumption of a product

price mechanism

the way the decisions made by households(buyers or consumers) and firms (sellers) interact to decide the allocation of resources

market equilibrium

a situation where demand and supply are equal

market price

the price at which a product is bought and sold

equilibrium price

the price at which demand and supply are equal and there is no surplus or shortage

equilibrium quantity

when the quantity demanded by buyers equals the quantity supplied by sellers and so there is no surplus or shortage

surplus

the amount by which supply is greater than demand (excess supply)

shortage

the amount by which demand is greater than supply (excess demand)

price elasticity of demand

a measure of the responsiveness of the quantity demanded to a change in price

formula of PED

% change in quantity demanded upon % change in price

% change in qty demanded: change in demand upon original quantity demanded

% change in price: change in price upon original price

elastic demand

when the quantity demanded changes by a greater percentage than the percentage change in price

inelastic demand

when the quantity demanded changes by a smaller percentage than the percentage change in price

perfectly inelastic demand

when a change in price causes a complete change in the quantity demanded

perfectly inelastic demand

when a change in price has no effect on the quantity demanded

unitary elastic demand

when a percentage change in price causes an equal percentage change in the quantity demanded, leaving total revenue unchanged

price elasticity of supply (PES)

a measure of the responsiveness of the quantity supplied to a change in price

elastic supply

when the quantity supplied changes by a greater percentage than the percentage change in price

inelastic supply

when the quantity supplied changes by a smaller percentage than the percentage change in price

calculate PES

% change in quantity supplied upon % change in price

% change in qty supplied: change in quantity supplied upon original quantity supplied

% change in price: change in price upon original price

perfectly inelastic supply

when a change in price has no effect on the quantity supplied

perfectly elastic supply

when a change in price causes a complete change in quantity supplied

unitary elastic

when a change in price causes an equal percentage change in the quantity supplied