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Summary Cambridge International AS Level and A Level Economics Coursebook with CD-ROM, ISBN: 9780521126656 Unit 2 - The price system and the theory of the firm (9708)£11.50
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Summary Cambridge International AS Level and A Level Economics Coursebook with CD-ROM, ISBN: 9780521126656 Unit 2 - The price system and the theory of the firm (9708)
These documents include the whole summary for Topic 2: Price system & the microeconomy of Economics (CIE).
The summmary includes the most important key terms and concepts needed for sitting the exam. Also, there is a big range of brief, but detailed information that will help you understand the...
Businesses look at supply and demand for considering the price of their
products and service z
● Supply - price setting point of view of the business
● Demand - consumer's desire to purchase goods/services +
willingness to pay a price for a specific good or service
Key terms
➔ Price mechanisms: allocating resources in a market economy
◆ However, sometimes the govt controls the price mechanism to make commodities
➔ Market: it is where buyers + sellers get together to trade
Demand
➔ The quantity of a good or service that consumers are willing and able to buy at a given price in
a given time period
◆ Demand increases as price falls (and vice versa)
Key terms
➔ Quantity - quantity of a product that is demanded
➔ Product - goods or services being traded (shares?)
➔ Purchasers - consumers who buy the product (intermediaries/final consumer)
➔ Notional demand - the desire for a product - speculative demand - not always able to pay
➔ Demand is TIME RELATED - specify the time period when talking about Demand
1
, ➔ Demand Curve - represents the relationship between the quantity demanded and the price
of a product
➔ Demand schedule - the data from which the demand curve is drawn
From the point of view of the Demand, shares are part of the capital as they are considered to be
products in the stock market.
Types of demand
➔ Effective demand: the quantity that consumers are willing/able to buy at the market price
➔ Individual demand: demand of an individual/firm, measured by the quantity bought at a
certain price at one point in time.
➔ Market demand: the sum of all individual demands in a market for a particular good
➔ Aggregate demand: total demand for all goods and services that exist within the economy
Demand graph
➢ The demand curve is downward sloping
○ When price goes up, the quantity demanded decreases
○ When prices goes down, the quantity demanded increases
➢ The demand curve shows a linear and continuous relationship
➢ The demand curve shows a time-based relationship
➢ The rest of the variables remain equal - (Ceteris Paribus)
Movements along the demand curve:
● At price P1, a quantity of Q1 is demanded
● At price P, a quantity of Q is demanded
● At price P2, a quantity of Q2 is demanded
Shifting the demand curve:
● Price changes don’t shift the supply curve
2
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