2) CH4 Supply And Demand

Question 1

What is a market?

Answer 1

Group of buyers and sellers of a particular good or service.

Question 2

Who determines the demand?

Answer 2

Buyers, marginal utility.

Question 3

Who determines the supply?

Answer 3

Sellers, marginal cost

Question 4

What does determine the prices?

Answer 4

Interaction between buyers and sellers.

Question 5

What is a competitive market?

Answer 5

Market in which there are many buyers and sellers, so that each has a negligible impact on the market price.

Question 6

What does allow “perfect competition”?

Answer 6

Homogeneity: products are the same.

Atomicity: many sellers and buyers so they have no influence on the price.

Buyers and sellers are price taker, no monopoly.

Free entry and exit of the market.

Question 7

What is a monopoly?

Answer 7

One seller controls the price.

Question 8

What is a oligopoly?

Answer 8

Few sellers with a not always agressive competition.

Question 9

What is a monopolistic competition?

Answer 9

Many sellers, slightely differentiated products, each seller may set his price for his product.

Question 10

What is demand?

Answer 10

Amount of a good people are wiling and able to buy.

Question 11

What is the demand law?

Answer 11

Quantity of goods fall when price rises, other things equal.

Question 12

What is the market demand?

Answer 12

Sum of all the individuals demands.

Question 13

What are the reasons for a shifting in the demand curve?

Answer 13

1) Consumer income
2) Prices of related goods
3) Tastes are changing over time
4) Expectations of quality
5) Number of buyers

Question 14

What does happen to normal and inferior goods when income increase?

Answer 14

Normal: demand rises Inferior: demand decreases

Question 15

What happen to demand for substitutes goods?

Answer 15

If the price of one decreases, the demand for the other decreases.

Question 16

What is supply?

Answer 16

Amount of good that the sellers are willing and able to sell.

Question 17

What is the law of supply?

Answer 17

Quantity of a good rises when the price of the good rises.

Question 18

What is the market supply?

Answer 18

Sum of all the quantities the sellers are willing and able to sell.

Question 19

What are the reasons for a shifting on the supply curve?

Answer 19

1) Technology
2) Input prices
3) Expectations: figure out what will be the needs tomorrow.
4) Number of sellers

Question 20

What is the “equilibrium”?

Answer 20

Situation in which the price has reached the level where quantity supplied is equal to quantity demanded.

Question 21

What is a “surplus”?

Answer 21

price > equilibrium, then quantity supplied > quantity demanded. The price will get lower to the equilibrium.

Question 22

What is a “shortage”?

Answer 22

price < equilibrium, q D > q S

Suppliers will raise the prices to move back to the equilibrium.

Question 23

What is the law of supply and demand?

Answer 23

The price of any good adjusts to bring the quantity supplied and the quantity demanded for that into balance.

Question 24

What are the 3 steps to analyze changes in Equilibrium?

Answer 24

1. Decide wether the event shifts the supply or demand curve (or both)
2. Decide wether the curve(s) shit(s) to the left or to the right
3. Use the diagram to see how the shift impacts equilibrium p and q

Question 25

What is the difference between a change in the curve and a change in the q?

Answer 25

A change in the curve will imply a shift of the curve whereas a change in the q will imply a movement along the curve.

Question 26

Summary of shiftings:

Answer 26