Understanding Key Market Concepts: Demand, Supply, and More
Understanding Key Market Concepts
Market: A set of trading activities of a product based on supply and demand.
Demand: The quantity of goods consumers are willing to buy at a specific price, considering the prices of related goods, disposable income, and tastes or preferences.
Demand Curve: The graphical representation of the demand function, illustrating the different quantities of a good that buyers are willing to purchase at each price.
Supply Curve: The graphical representation of the supply function, showing the different quantities of a good that firms are willing to produce at each price.
Supply: The quantity of goods that companies are willing to produce at a specific price, considering production costs, which depend on the costs of production factors, technology, and business goals.
Market Equilibrium: The point where the plans of consumers and businesses align, ensuring that the exchange satisfies both parties.
Barriers to Entry: Factors that prevent or hinder new firms from entering a market.
Exit Barriers: Factors that prevent or hinder firms from exiting a market.
Cartel: An informal group of companies that, while maintaining their independence, collaborate to reduce or eliminate competition in the market.
Market Structures
Monopoly: The extreme case of imperfect competition, characterized by the absence of competition. A single company produces all of a good or service, giving it full control over the price and quantity produced.
Oligopoly: A market in which a few companies operate, each with sufficient size to influence the price if one of them changes its supply.
Monopolistic Competition: A market with many companies offering similar products with the same function or utility. These companies differentiate their products to build customer loyalty.
Factors of Production
Land Rent or Lease: The compensation paid to owners for the use of natural resources, reflecting the land’s ability to generate income.
Rent: The value or price paid for the use of a productive resource over a given period.
Interest: The value of capital services or, more specifically, the price of money.
Salary: Compensation paid for work performed for others.
Interprofessional Minimum Wage: The minimum wage that any worker in Spain must receive, regardless of their profession.
Economic Policies and Issues
Employment Policy: A set of plans and procedures aimed at reducing unemployment in an economy.
Market Failure: A negative consequence of market performance that occurs when the allocation of resources is inefficient.
The Economic Cycle: Fluctuations in economic activity, alternating between phases of expansion and recession.
Economic Policy: The set of measures and instruments used by the State to intervene in the economy and promote the country’s progress.
Externalities
External Cost or Negative Externality: The cost of an economic activity that affects people other than those performing the activity.
External Benefit or Positive Externality: The benefit of an economic activity received by people other than those carrying out the activity.
Externalities: Consequences of economic activity that affect people other than those performing the activity and are not reflected in the prices of goods and services produced.
Welfare State: A specific type of mixed economy characterized by the recognition of basic rights for all people.