1.1.3 Demand, Supply and the market equilibrium

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12 Terms

1
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Theory of Demand

At higher prices, a lower quantity will be demanded than at lower prices, and vice versa.

2
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Determinants of Demand

  • Income

  • Prices of complements and substitutes

  • Tastes and fashions

  • Advertising

  • Population

3
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Cause of movements along a Demand Curve

Price determinants

<p><strong>Price determinants</strong> </p>
4
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Cause of shifts along a Demand Curve

Non-price determinants - will cause the quantity demand to change

<p><strong>Non-price determinants</strong> - will cause the quantity demand to change </p>
5
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Supply Curve

How much of a product sellers are willing to supply at different prices

(between price and quantity supplied)

<p>How much of a product sellers are willing to supply at different prices </p><p>(between price and quantity supplied)</p>
6
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Factors affecting Supply

  • Prices of factors of production

  • Technology

  • Taxes

  • Subsidies

  • Labor productivity

  • Number of firms in an industry

  • Natural factors (e.g. weather)

7
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Cause of movements along a Supply Curve

Price variations

<p>Price variations</p>
8
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Cause of shifts of a Supply Curve

Alterations in non-price determinants (like technology, costs and labor productivity)

<p>Alterations in non-price determinants (like technology, costs and labor productivity)</p>
9
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Equilibrium Price

The price where supply equals demand, leading to a state of ‘rest’ in the market, determined by the intersection of the demand and supply curves.

<p>The price where supply equals demand, leading to a state of ‘rest’ in the market, determined by the intersection of the demand and supply curves.</p>
10
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Excess supply on supply and demand diagram - how to fix this

There is a higher supply of the products than there is demand; a surplus

To fix, lower price temporarily (sale) until excess stock is sold

<p>There is a <strong>higher supply of the products than there is demand</strong>; a surplus</p><p>To fix, lower price temporarily (<strong>sale</strong>) until excess stock is sold</p>
11
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Excess demand on supply and demand diagram - how to fix this

Demand is higher than the amount that can be supplied, to combat:

Raise the price until demand evens out it is justified due to the popularity of the good- people will begin to buy less, and extra revenue is made

<p>Demand is higher than the amount that can be supplied, to combat: </p><p>Raise the price until demand evens out it is justified due to the popularity of the good- people will begin to buy less, and extra revenue is made</p>
12
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Shifts in Supply and Demand

Changes in equilibrium price due to shifts in demand or supply curves, leading to adjustments in price levels to match supply and demand.

<p>Changes in equilibrium price due to shifts in demand or supply curves, leading to adjustments in price levels to match supply and demand.</p>