Demand and supply

• What is a market?

  Any situation where buyers and sellers come into contact in order to exchange goods and services
• What is demand?

  The desire to buy or good at a given price, backed by the abilitry to pay for that good or service
• What is utility?

  Benefit gained from consuing a good or service
• What is marginal utility?

  The change in satisfaction/ benefit from consuming an extra unit of a good or service
• What is total utility?

  The total satisfaction/ benefit from a given level of comsumption of a good or service
• What is supply?

  The quantity of a good or service that suppliers wish to sell over a range of prices, within a time period
• What is joint supply?

  Occurs when two goods are produced together from the same raw materials eg cows and milk
• What is determinant of demand?

  The factors that affect the demand for a good or service
• What is determinant of supply?

  The factors that affect the supply of a good or service
• What is individual demand curve?

  Shows quantity of a good or service an individual would be willing to buy at various prices over a particular time period
• What is market demand curve?

  quantity of a good or service that would be demanded by all consumers at various prices (sum of all individual curves)
• What is demand schedule?

  Table showing the quantity demanded for a good or service for a specific time period over a range of prices
• What is individual supply curve?

  Individual firm shows the quantity of a good or service the firm is willing to supply over a range of prices. within a given time period
• What is market supply curve?

  Shows the total amount of a good or service that will be supplied by all the firms in the market, over a range of prices, within a time period
• What is supply schedule?

  Table that shows the quantity supplied for a good or service for a specific time period over a range of prices
• What does ceteris paribus mean?

  Assuming everything else is equal
• What is equilibrium (market clearing)?

  A state of balance, where opposing forces are equal and there is therefore no tendency to change ceteris paribus. In the free market this point is Qs=Qd
• What is equilibrium price?

  The price of an item at equilibrium point
• What is equilibrium quantity?

  The quantity per time period of an item at equilibrium point
• What is glut (excess supply)?

  If the price is higher than the equilibrium, quantity supplied is greater than demand
• What is shortage (excess demand)?

  If the price is lower than equilibrium, quantity demaned is greater than supply
• What is a normal good?

  A good in which an increase in income causes an increase in demand
• What is an inferior good?

  An increase in income causes a fall in demand eg supermarket branded food
• What is a substitute good?

  Two alternative goods that can be used for the same purpose
• What is a complementary good?

  Products that are bought and consumed together eg ink and printer
• What is a consumer surplus?

  The difference between what consumers are willing to pay for a good or service and the price they actually pay
• What is producer surplus?

  The difference between the market price which firms receive and the price at which they are willing to supply
• What is a subsidy?

  sum of money granted by the government to help an industry or business keep the price of a commodity or service low
• What is indirect tax?

  Tax paid by the firms such as VAT, on items like alcohol
• What is a supply shock?

  Factors that affect the SRAS curve such as oil prices
• What is elasticity?

  measures the responsiveness of demand (or supply) in response to changes in another variable such as price
• What is elasticity of demand (ED)?

  the responsiveness of quantity demanded to a change in any of its determinants
• What is cross elasticty of demand (XED)?

  the responsiveness of quantity demanded for a product to changes in the price of another product
• What is price elasticty of demand (PED)?

  The responsiveness of quantity demanded for a product to a change in its price
• What is income elasticty of demand?

  The responsiveness of quantity demanded for a product to a change in consumer incomes
• What is elasticty of supply (ES)?

  The responsiveness of quantity supplied of a product to a change in any of its determinants
• What is prce elasticty of supply(PES)?

  The responsiveness of quanity supplied of a product to a change in its price
• What does elastic mean?

  the demand of a good is very responsive to price change
• what does inelastic mean?

  the demand is not very responsive to a change in price
• what is unitary elasticity?

  rate of change in demand is equal to the rate of change in price