1.1 Competitive Markets: Demand + Supply Flashcards
Market
A place where goods and services are traded for currency. (does not have to be money)
Demand
Is the willingness and ability to purchase a good or service at a certain price over a given time period.
Law of Demand
At lower prices, consumers are more willing and able to purchase goods and services, ceteris paribus
Change in quantity demanded
is caused by a change in price, and it is represented by a movement along the demand curve
Market Equilibrium
is a situation where prices are stable, and the quantity of goods and services supplied is equal to the quantity demanded.
Changes in quantity supplied
is caused by a change in price, and it is represented by a movement along the supply curve.
Normal goods
as income prices, demand for that product also rises.
Small increases in demand for necessities,
large increase in demand for other products
Inferior goods
As income rises, demand for the product falls.
Consumers start to buy higher priced substitutes in place of inferior goods.
(Examples: Cheap wine, baked goods)
Substitute goods
Two products that are similar to each other
Complement goods
Products that are often purchased together
Unrelated goods
If products are unrelated, then changes in price of one product will have no effect on the price for another product
Non-price determinants of demand
- Income
- Price of other goods
- Tastes/preferences
- Size of population
- Changes in age structure of the population
- Changes in income distribution
- Government policy changes
- Seasonal Changes
Non-price determinants of supply
- Costs of factors of production
- Price of other products
- State of technology
- Expectations
- Government intervention
