ECO130 - Topic 2
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The freedom of consumers to make their own choices about which goods and services to buy.
Law of Demand
The principle that there is an inverse relationship the price of a good or service and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.
Change in Quantity Demanded
A movement between points along a stationary demand curve, ceteris paribus.
Change in Demand
An increase or decrease in the demand at each possible price.
An increase in demand is a rightward shift in the entire demand curve (vice-versa).
Non-price Determinants of Demand
- Number of buyers
- Tastes and preferences
- Expectations of buyers
- Prices of related goods
Any good or service for which there is a direct relationship between changes in income and its demand.
New cars, flights, expensive jewellery, electronic games.
Any good or service for which there is an inverse relationship between changes in income and its demand curve.
Potatoes, used cars, cheap jewellery.
A good that competes with another good for consumer purchases.
Direct relationship between a price change for one good and the demand for its 'competitor' good.
A good that is jointly consumed with another good.
Inverse relationship between a price change for one good and the demand for its 'complementary' good.
Law of Supply
The principle that there is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus.
Only at a higher price will it be profitable for sellers to incur the higher opportunity cost associated with producing and supplying a larger quantity.
Change in Quantity Supplied
A movement between points along a stationary supply curve, ceteris paribus.
Change in Supply
An increase or decrease in the supply at each possible price.
An increase in supply is a rightward shift of the entire supply curve (vice-versa).
Non-price Determinants of Supply
- Number of sellers
- Input prices
- Taxes and subsidies
- Expectations of producers
- Prices of other goods the firm could produce
Any arrangement in which the interaction of buyers and sellers determines the price and quantity of goods and services exchanged.
A market condition existing at any price where the quantity supplied is greater than the quantity demanded.
A market condition existing at any price where the quantity supplied is less than the quantity demanded.
A market condition existing at any price for which the quantity supplied equals the quantity demanded.
One in which society maximises the benefits it obtains from the use of its scarce resources.
A mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices.
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