AOS 2: Key Concepts in Supply and Demand Economics

What are factors or conditions of supply?

Non-price influences on the quantity of a good or service that sellers are prepared to produce or sell at a given price, including production costs, government taxes, and climatic conditions.

What happens to the supply line when supply conditions change?

The supply line shifts horizontally to the right (increase in quantity supplied) or to the left (decrease in quantity supplied), affecting the equilibrium price.

What is the finance market?

An institution where buyers (borrowers) and sellers (lenders) of credit negotiate a price called the rate of interest.

What is the foreign exchange market?

An institution where buyers and sellers exchange international currencies at a price called the exchange rate.

What is a homogeneous product?

A good that is identical to another with no product differentiation, meaning one good is an exact substitute for another.

What does international competitiveness refer to?

The ability of a business or country to produce and sell goods and services profitably at prices below those for similar goods made abroad.

What is the labour market?

An institution where buyers and sellers of labour resources negotiate a price called a wage.

What does the law of demand state?

As the price of a good or service rises, the quantity demanded contracts; as the price falls, the quantity demanded expands.

What does the law of supply state?

As the price of a good or service rises, the quantity supplied expands; as the price falls, the quantity supplied contracts.

What is a market?

An institution or organization where buyers and sellers of a good or service negotiate an agreeable price.

What is market failure?

A situation where demand and supply cause resources to be allocated in ways that reduce societal satisfaction and wellbeing.

What is market power?

When a firm has significant control or influence in a market, acting as a price maker due to limited competition.

What is a market shortage?

Occurs at a price below the equilibrium price, where quantity demanded exceeds quantity supplied.

What is a market surplus?

Occurs at a price above the equilibrium price, where quantity demanded is less than quantity supplied.

What are material living standards?

A measure of how well-off an individual or society is in terms of income, production, or consumption levels of goods and services per person per year.

What is a mixed economy?

An economic system where most decisions about resource allocation are made by consumers through the market, while businesses are primarily privately owned.

What is monopolistic competition?

A market structure with many sellers offering similar but not identical products, differentiated by features like brand names.

What causes movement along the demand line?

A rise or fall in the level of prices, leading to contraction or expansion of demand.

What causes movement along the supply line?

A rise or fall in the level of prices, leading to expansion or contraction of supply.

What are non-rural commodity markets?

Institutions where buyers and sellers of raw materials extracted from the ground negotiate prices.

What is an oligopoly?

A market structure where a few large firms control the output of an industry, limiting competition.

What is perfect knowledge in a market economy?

A condition where buyers and sellers have complete and accurate information to make rational decisions.

What is perfect or pure competition?

A market structure with many sellers where each has little market power in setting prices.

What is perfect or pure monopoly?

A market structure where a single firm controls the output of an entire industry with weak competition.

What are price makers?

Firms in monopoly-type markets that face little or no competition and can set their own prices.

What are price takers?

Firms in competitive markets that have no power to set prices and must accept the market price.

What is product differentiation?

When one good is not an exact substitute for another due to distinguishing features, giving sellers more market power.

What is the property market?

An institution where buyers and sellers of land, houses, and industrial sites negotiate prices.

What is purchasing power?

The quantity of goods or services that can be bought with each dollar of income, affected by prices and inflation.

What are relative prices?

A concept comparing the price level of one good against another, influencing resource allocation decisions.

What are relative profits?

A comparison of profits gained from producing one good against another, affected by changes in relative prices.

What are rural or agricultural commodity markets?

Institutions where buyers and sellers of farm produce negotiate prices.

What causes a shift in the demand line?

Changes in non-price conditions affecting the quantity of a good or service bought at any given price.

What causes a shift in the supply line?

Changes in non-price conditions affecting the quantity of a good or service sold at any given price.

What is the stock market?

An institution where buyers and sellers of company stocks negotiate share prices.

What does supply represent?

The amount of a good or service that sellers are prepared to produce or sell at a given price, varying directly with price.