What is a market?
place where buyers and sellers come together to carry out an economic transaction
What are some of the types of markets?
- Physical markets
- Online markets
- Product markets
- Factor markets
- Financial markets
- Stock markets
What is demand?
the quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period
What does the Law of Demand state?
“as the price of a product falls, the quantity demanded of the product will usually increase”
What is the demand function?
QD = a - bP
What are some of the reasons for the increase in demand?
- Income effect: when the price of a product falls, people have an increase in their “real income”, which reflects the amount that their incomes will buy
- Substitution effect: when the price of a product falls, the product will relatively be more attractive to people than other products, whose prices have stayed unchanged
Which are the determinants of demand?
- Income
- The price of other products
- Tastes / preferences
- Other
What are normal goods?
for most goods, as income rises, the demand for the product will also rise
What are inferior goods?
demand for the producer will fall as income rises, and the consumer starts to buy higher priced substitutes in place of the inferior good
What are substitute products?
if products are substitutes for each other, then a change in the price of one of the products will lead to a change in the demand for the other product
What are complementary products?
if products are complements for each other, then a change in the price of one of the products will lead to a change in the demand for the other product
What are unrelated goods?
if products are unrelated, then a change in the price of one product will have no effect upon the demand of the other product
Which may be other factors for demand?
- size of population
- changes in the age structure of the population
- changes in income distribution
- government policy changes
- seasonal changes
What is supply?
the willingness and ability of producers to produce a quantity of a good or service at a given price in a given time period
What does the Law of Supply state?
“as the price of a product rises, the quantity supplied of the product will usually increase”
What is the supply function?
QS = c + dP
Which are the determinants of supply?
- price
- cost of factors of production
- price of other products
- state of technology
- expectation
- taxes
- subsidies
