What is price mechanism
where free market forces like demand and supply determine the prices of goods
What do interrelationships between the market show?
that markets do not operate in isolation and they are usually interrelated
What are the three roles of price mechanism explained?
Signaling - market clearing prices used to demonstrate where resources are required
Rationing - allocate scarce resources to firm
Incentive - Through choices consumers send information to producers about their changing nature of needs and wants.
What is joint demand with example?
Complimentary good where two goods are demanded together
Cars + fuel
What is competitive demand?
Substitute goods pepsi + coke
What is derived demand?
Demand for one thing leads to demand for another
increase demand for houses means more bricks means more labour
What’s composite demand with an example
Demand for a good which has multiple uses - one thing makes two
crude oil makes plastics and gas
What is joint supply with example
2 goods that are produced together
honey and beeswax
Define consumer surplus
an area above the market price and below the demand curve that consumers are willing to pay
Define producer surplus
An area below the market route and above supply line that firms are willing to accept
What are the three taxes
direct tax - tax on individuals (income tax)
indirect specific tax - flat amount or per unit tax - road tax
indirect ad valorem tax - changes depending on item VAT
How do you find the incidence of tax
new equilibrium to orignal supply line
