Why does the demand curve slope down?
- People are willing to pay more if there are fewer goods
- People might find that rare things are more useful-more utility. Demand curve might show marginal utility
- People might be indifferent when prices are not high
Why does the supply curve slopes upwards?
- Resources run down
- Costs go up
- Lots of firms produce, so profit goes down
Consumer and Producer surplus.
Producer surplus is a difference between what a producer would have sold for and what they actually sell for.
Consumer surplus is a difference between what a consumer would pay and what he actually pays. Surplus utility or surplus satisfaction.
Surplus is a benefit but only in terms of planning and anticipation.
Substitute and Complementary goods.
Substitute goods:
- Goods that can be used instead of another
- The benefit from the goods is similar or the same as from the other
- Direct relationship in terms of cross-elasticity
Complementary goods:
Are goods that are bought together:
- Cars and Petrol
- Bread and Butter
- Tea and Biscuits
Free Market Economy
- Lot's of suppliers
- Consumer sovereignty
- Price Mechanism
Mixed Economy
- Some degree of government control
- Some free markets
- Same prices do not reflect pure cost
Command Economy
- Government control
- Plan
- State business
Cool Factor.
Cool factor is opportunity cost of not having an ipod or individual benefit of having it.
Imputed Value.
Imputed value is a value an individual gives to a thing.
Comparative advantage.
Comparative advantage- if costs of production differ, countries should trade. Costs will be explained in terms of different opportunity cost.
Types of goods.
- Normal good- if price goes up, demand goes down; if price goes down, demand goes down
- Inferior good- if income went down, the demand would go up, alternatively if income went up, demand would go down.
- Giffen good- a kind of substitute when goods are expensive or scarce.
- Veblen good- luxury goods with imputed value. ( Price up, demand up)
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