5th year economics- Market Demand

individual demand

quantity demanded of a good or service by individual consumers at different prices.

market demand

aggregate quantity of a good or service that would be demanded by all consumers in a market at different prices.

derived demand

demand for a god not for its own sake but for its use in the production of other goods

composite demand

applies where goods have more than one use. an increase in demand for one product can result in a fall in supply of another.

joint demand

complementary goods that are bought and sold together.

effective demand

refers to the willingness and the ability of consumers to purchase goods/services at different prices.

law of demand

consumers buy more of a good when its price decreases and less when its price increases

exceptions to the law of demand: giffen goods

essential items with few or no substitutes, rise in price means demand for good also rises.

normal good

a good that consumers demand more of when their incomes increase

inferior good

a good that consumers demand less of when their incomes increase

Substitutes

Goods that are alternatives for one and other

Complements

Goods that are bought and sold together

Law of supply

As the price of a good increases, the quantity supplied also increases, and vice versa, assuming all other factors remain constant.

Exceptions to the law of supply

• supply is fixed

• supplier is operating close to maximum capacity

Cause for movement along the supply curve

changes in price of the good

Individual supply

Refers to the quantity of a good or service supplied by individual suppliers at different prices.

Market supply

The aggregate quantity of a good or service supplied by all suppliers in a market at different prices.

Factors that cause movement/shift in the DEMAND curve.

1) change in income

2) price of substitutes

3)Price of complements

4) Advertising, changes in consumer taste

5) Expectations regarding future price

6) population/market size

7)Availability of credit

8) unplanned factors

*HAVE AN EXAMPLE FOR EACH*

What causes Movement along the supply curve?

the only thing that could cause movement long the supply curve is a change in the good itself.

Factors that could cause a movement/shift of the SUPPLY curve

1) A change in the costs of production

2) Price of related goods and service

3) unplanned factors

4) government and EU subsidies

5) Number of sellers

6) advancment in tech

*HAVE AN EXAMPLE FOR EACH*

A change in the costs of production

If there is a rise in costs, les can be produced with the money given. If there is a fall in costs more can be produced with the money given.

Price of related goods and service

e.g rise in price of carrots causes fall in supply for parsnips as carrots are grown more because they are more profitable. then fall in price of carrots results in rise in supply of parsnips.

government and EU subsidies

e.g Incentives farmers to produce more of a certain food or animal.

Subsidy

A payment to the supplier that covers most of the cost of the suppliers production costs.

Equilibrium price

A price that ensures that everything that is supplied is demanded, ensures no excess stock.

The signalling function of price mechanism

when price is too HIGH buyers will not purchase as many units of the good, stoc will go unsold. when price was too LOW buyers demanded too much of the good.

Price Ceiling

A price that is below the equilibrium price. It is a price above which suppliers cannot charge.

movement to the Left

signals a DECREASE in demand/supply

movement to the Right

signals an INCREASE in demand/supply

Perfectly Inelastic

Supplier cannot change supply in response to price change, supply is limited

Excess demand

When a price isn’t priced at the equilibrium price, the supply will not be able to fill the demand, making excess demand.

Excess supply

when the item isn’t priced at its equilibrium the demand will not meet the supply creating excess supply.

Implications of a rent price ceiling

• landlords would withdraw from the market, supply of properties would fall but demand would increase causing excess demand.

• landlords may agree to the price ceiling but compensate by introducing other charges.

• the quality of rental properties will decrease if landlords don’t have money to re-invest in the property.