Chapter 2-Revision

Market-where or when buyers and sellers meet to tradeor exchange product.
There are many types of markets:

• foreign exchange market
• stock market
• holiday market
• housing market
• retail market
• commodity market
• labour market
• eBay

Each of these markets has the same basic characteristics:

• a physical place where, or some mechanism whereby, buyers and sellers can meet or contact each other.
• a willigness to trade or exchange goods and services.

Sub-market: a recognised or distinguishable part of a market.Also known as a market segment.
Demand
In simple terms, demand is what consumers want.However,what consumers want and what they actually demand are not the same thing for two reasons:

• Whants are unlimited
• The point about demand is that to consume a product,consumers nast have the ability to pay.

So:
Demand:the quantity of a product thet consumers are able and willing to purchase at various prices over a period of time.
National demand: the desire for a product
Effective demand: the willigness and ability to buy a product
Ceteris paribus: (Latin: other things being equal): assuming other variables remain unchanged.

Relationship between price and quantity demanded
The relationship between price and quantity demanded of a product is in certain respects obvious.From our own experience, we know that in general if there is a sale and the price of something we want falls,then we are more likely to purchase it.Conversely, if there is an increase in price of a particular product, the usual reaction from consumers is to by less of it.

Thise relationship is a key consideration in microeconomics.In other words, it means that:

• there is an inverse relationship between the price of a product and quantity demanded
• the lower the price, the more that will be demanded
• the higher the price,the less that will be demanded
  

The demand curve
The demand curve is a simple representation of the relationship between the price of a product and the quantity that is demanded.It is usually represented in the form of the simple graph; price is plotted on the vertical (y) axis, the quantity on the horisontal (x) axis.
The data from which a demand curve is derived is taken from what is known as a demand schedule.

Demand curve: this shows the relationship between the price of a product and the quantity demanded.
Demand schedule: the data that is used to draw the demand curve for a product.
Movement along the demand curve: this is in response to a change in the price of a product.





An extention in demand is where a fall in price results in a greater quantity demanded.

A contraction in demand is where a higher price results in a lesser quantity demanded.







Consumer surplus.

Consumer surplus: the extra amount that a consumer is willing to pay for a product above the price that is actually paid.
For example, a persone prepared to pay 4 pounds for the first cinema trip, 3 pounds for the second and 2.25 for the third.If the actual price of admission is only 1.50,thise person will go to the cinema five times per month.The consumer surplus therefore is 2.50 pounds for the 1-st,1.50 for a second and so on. When demand is five times rer month , this individual has received a consumer surplus of 5.05 pounds.




Prise it is not the only reason or factor that affects the demand for a product.There are three non-price factors, recognised by economists as influencing the demand for most types of product.

• consumer income
• the prices of other products
• tastes and fashion

Consumer income
It is almost stating the obvious to say that income,our ability to purchase a product, has an important influence on whether we actually by a good.To be more specific, income is best seen in terms of what is left in our pockets once direct tax has been deducted and any state benefits have been added and the effects of inflation have been taken into account.This is referred to in economics as real disposable income. Example, if the money you receive increases by 5 per cent but prices rise by 3 per cent, then real income has increased by 2 per cent.

Disposable income: income after taxes on income have been deducted and state benefits have been added.
Real disposable income: income after taxes on income have been deducted and state benefits have been added and the result has been adjusted to take into account changes in the price level.

There are two types of goods: normal goods and inferior goods.

Normal goods: goods for which an increase in income leads to an increase in demand.
Inferior goods: goods for which an increse in income leads to a fall in demand.

The demand for many products we buy is mainly determined by our real disposable income.

The price of other products
The demand for a particular product can also be affected by a chage in the price of another,different product.Two possible cases are recognised: substitute and complements

Substitute: competing goods (BMW and Audi cars are top of the range substiutes )
Complements: goods for which there is joint demand. (Car prices and petrol prices)

Tastes and fushion

Over time, consumer tastes change.That is why in our fast-moving world, the life cycle of many products may be quite limited.