Year 11 Economic Notes on Chaper 6
Chapter 6 – Markets
The role of market • Determining solutions to the economic problem which is wants are unlimited but sources are scarce. • The importance of relative price in reflecting opportunity costs in the goods and services and factor markets
The market price paid by consumers for goods and services reflect opportunity costs. Markets for productive resources (natural, human and capital), known as factor markets, determine the opportunity costs of productive resources. Market price can also be used to help determine the best way to allocate scarce resources.
Demand
Demand is the quantity of a particular good or service that consumers are able to purchase at various price levels, at a given point in time.
Law of demand states that as the price of a good increase the quantity demanded will decrease.
Individual demand – a demand by individuals for goods and services
Market demand – demand by all consumers for a particular good or service
The demand curve – shows the relationship between prices, quantity and demand for a product in a graphical form.
Factors affecting market demand • Price of G&S: generally the higher the price, the lower the demand for a good or service. • The level of income: the higher the income, the more an individual/household can consume. • Population: a growing population means there are more potential consumers. • Consumer taste: influences what the consumer wants to buy. • Prices of substitutes and complementary goods: a substitute good is a product that could be used in place of another, a complementary good that is used in conjunction with another. • Expected future prices: if prices are expected to decrease, consumers may choose to delay the purchase for the good, as it reduces opportunity costs. However, if the prices are expected to increase consumers may purchase more goods now with the assistance of credit.
o Movements along demand curve
The role of market • Determining solutions to the economic problem which is wants are unlimited but sources are scarce. • The importance of relative price in reflecting opportunity costs in the goods and services and factor markets
The market price paid by consumers for goods and services reflect opportunity costs. Markets for productive resources (natural, human and capital), known as factor markets, determine the opportunity costs of productive resources. Market price can also be used to help determine the best way to allocate scarce resources.
Demand
Demand is the quantity of a particular good or service that consumers are able to purchase at various price levels, at a given point in time.
Law of demand states that as the price of a good increase the quantity demanded will decrease.
Individual demand – a demand by individuals for goods and services
Market demand – demand by all consumers for a particular good or service
The demand curve – shows the relationship between prices, quantity and demand for a product in a graphical form.
Factors affecting market demand • Price of G&S: generally the higher the price, the lower the demand for a good or service. • The level of income: the higher the income, the more an individual/household can consume. • Population: a growing population means there are more potential consumers. • Consumer taste: influences what the consumer wants to buy. • Prices of substitutes and complementary goods: a substitute good is a product that could be used in place of another, a complementary good that is used in conjunction with another. • Expected future prices: if prices are expected to decrease, consumers may choose to delay the purchase for the good, as it reduces opportunity costs. However, if the prices are expected to increase consumers may purchase more goods now with the assistance of credit.
o Movements along demand curve