Foundations of Economics & Competitive Markets: Supply & Demand

Market demand

Market demand refers to the sum of all individual demand for a particular good or service at each given price level. It is found by adding up all indivudal demand at seperate price levels.

Supply

Supply is the amount of a good or service that firms are willing and able to provide at any particular price, per time period.

Complomentary goods

Complomentary goods are products that are jointly demanded

Competitive markets

Scarcity

Scarcity refers to the finitie resources (limited in supply) of an economy relative to the unlimited needs and wants of individuals and societies.

The basic economic problem

The basic economic problem refers to the issue of how best to allocate an economy’s scarce resources in order to satisfy the unlimited needs and wants of individuals, firms, and governments.

Consumer surplus

Consumer surplus refers to the gain or benefit to buyers who can purchase a product at a price lower than what they are willing and able to pay for the product. It is calculated using the formula CS = WTP - P

Producer surplus

Producer surplus refers to the gain or benefit to firms who recieve a price that is higher than what they are willing and able to supply. It is calculated using the formula PS = P - WTS

Opportuntiy cost

Opportunity cost refers to the cost of an economic decision measured in terms of the next best alternative choice foregone.

Factors of production

Factors of production are the four categories of recources that are required to produce any good or service. They are land, labour, capital, and enterprise.

Market

A market is any place where transactions take place between buyers and sellers. It can be physical or virtual.

Allocative efficency

Allocative efficency is the socially optimal situation that occurs when recources are distributed in such a way that consumers and producers get the maximum possible benefit, that is, no one can be made better of without making someone else worse off.