Economics grey areas

Demand vs Effective demand

Demand refers to the willingness and ability of consumers to purchase goods and services at a given price, while effective demand is the actual demand for a product at a given price, factoring in consumers' purchasing power.

Market

A place where buyers and sellers interact for the purpose of exchange of goods and services → mechanism for the economic problem.

Product vs Factor market

Where goods and services are bought and sold vs where factors of production are bought and sold.

Factors affecting demand

Income, Age, Population, Consumer preference, Subsitute and complimentary good price changes

Factors affecting supply

Technology, climate, factors of production, availability of product, prices of other G+S, expected future prices

Government intervention

When governments put measures in place to address market failiure within an economy.

Price ceiling

Creates a maximum legal price to redistribute income from sellers to buyers Effect creates a shortage and increases consumer surplus

Price floor

Sets a minimum legal price to redistribute income from buyers to sellers effect creates a surplus and generates more revenue for firms.

Quality intervention

Government regulation of how much of a good or service can be supplied.

Market based mechanisms

Strategies that influence market behaviour with economic incentives

Tax impact vs incident

Who is legally responsible for paying the tax vs who bears the burden of the tax

Subsidy

When governments distribute money to pay consumers (or producers) to make the consumption (or production) of a product cheaper.

Externalities

The cost or benefit of the production of a good or service afforded to a third party not involved in the production.

Excludable goods

Goods that can only be used by consumers that have paid for it eg Netflix

Rival goods

Goods where the consumption by one person reduces the amount available for others

Merit goods

goods with positive externalities

Public goods

Not excludable and not rival → freerider problem.

GDP

Aggregate of the total market value of all final goods and services produced within an economy over a period of time.