19 Questions
What is a factor that influences demand?
Price Expectation
What is the term for the exchange mechanism that brings together sellers and buyers of a product?
Market
What is the result of having many sellers and many buyers in a Perfectly Competitive market?
Each seller and buyer is sufficiently small to not influence the price
What is the term for the entity that makes a product, good, or service available to the buyer in exchange for monetary consideration?
Seller
What is the characteristic of products in a Perfectly Competitive market?
Homogeneous products
What is the law of supply and demand?
The theory that prices are determined by the relationship between supply and demand.
What is the primary perspective used in decision making?
That of the owners of the firm
What is the definition of elastic demand?
A change in quantity demanded that is greater than a change in price.
What is the effect of using a common unit of measurement in decision making?
It simplifies the analysis of alternatives
What is the market structure under which the law of supply and demand operates?
Perfect competition.
What is the purpose of considering all relevant criteria in decision making?
To select the alternative that best serves the long-term interests of the owners
What is the equilibrium point in the supply and demand theory?
The point where the supply is equal to the demand.
Why is it essential to make risk and uncertainty explicit in decision making?
To recognize their inherent presence in estimating future outcomes
What is the law of demand?
As prices rise, customers buy less.
What is the characteristic of a good decision-making process?
It can result in a decision with an undesirable outcome
What is the definition of a capital good?
A good used to produce other goods and services.
What is the definition of a necessity in Engineering Economy?
A product or service that is required to support human life and activities
What is the characteristic of a luxury in Engineering Economy?
It is desired by humans and will be purchased if money is available
What is the primary goal of the decision maker in evaluating alternatives?
To select the alternative that best serves the long-term interests of the owners
Study Notes
Factors that Influence Demand
- Income, population, taste and preference, price expectation, and price of related goods are factors that influence demand.
Market Situations
- A market is a mechanism that brings together sellers and buyers of a product, factor of production, or financial security.
- A buyer or consumer is the basic consuming unit of a commodity, which can be an individual, household, or government.
- A seller is an entity that makes a product, good, or service available to a buyer in exchange for monetary consideration.
Perfect Competition
- Perfect competition is a market situation characterized by many sellers and buyers, homogeneous products, free market-entry and exit, and perfect information.
- Key characteristics of perfect competition include:
- Many sellers and buyers
- Homogeneous products
- Free market-entry and exit
- Perfect information
- Absence of economic friction
Types of Goods
- Consumer goods satisfy human wants and needs, such as food and clothing.
- Producer goods are raw materials and tools used to make consumer goods.
- Capital goods are machinery used in the production of commodities in producer goods.
Supply and Demand
- Supply refers to the quantity of a good or service available for people to purchase.
- Demand refers to the quantity of a good or service that people wish to buy.
- The law of supply and demand states that prices are determined by the relationship between supply and demand.
- If supply exceeds demand, prices will fall, and if demand exceeds supply, prices will rise.
Types of Demand
- Elastic demand exists when a change in price leads to a greater change in quantity demanded.
- Inelastic demand exists when a change in price leads to a lesser change in quantity demanded.
- Unitary demand exists when a change in price leads to an equal change in quantity demanded.
Decision-Making
- A common unit of measurement should be used to simplify the analysis of alternatives.
- All relevant criteria should be considered when making a decision.
- Risks and uncertainty should be made explicit in the decision-making process.
- Decisions should be revisited and re-evaluated as necessary.
Engineering Economy
- Necessities are products or services that are required to support human life and will be purchased regardless of price.
- Luxuries are products and services that are desired by humans and will be purchased if money is available after necessities have been obtained.
Understand the factors that influence demand and the definition of market situations in economics. Learn about the impact of income, population, taste, and price on demand and the role of buyers and sellers in the market.
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