2. Supply and Demand Flashcards
What are Markets?
Situation where consumers and producers can negociate the exchange of goods/ services
Quantity demanded
Total amount that consumers desire to purchase in some period of time
Quantity bought
Actual Purchases
Is quantity a flow or a stock?
Flow, reliant on time
What is the law of demand
Empirical observation that when the price of a product falls, people demand larger quantities
Quantity Supplied
Total amount of a product that firm desire to sell in some time period. Firms are willing to offer for sale NOT quantity sold
Law of supply
When the price of a product rises, firms offer more of it for sale
What is the demand curve?
A curve that shows the relationship between the price of a product and the quantity of the product demanded
Downwards sloping
What is the supply curve?
A graph of the relationship between the rpice of a goof and the quantity supplied
Upwards sloping
What is excess demand?
When quantity demanded is more than quantity supplied
What is excess supply?
When quantity supplied is more than quantity demanded
What is the equilibirum quantity and price?
Price-quantity pair at which both buyers and sellers are satisfied
Adjustement to the equilibrium
Price differs to the equilibrium price, have to adjust the supply/demand until eq.
Opportunity improvement
Can change the supply/demand
Factors that shift the demand curve
- Incomes
- Tastes
- Price of substitutes and complements
- Expectations
- Population
What is a normal ood vs a inferior good?
Normal: quantity demanded at any price rises with income
Inferior goods: quantity demanded at any price falls with income
What is a complement?
Increase in price of one good decreases the demand for antoher good
ex. bacon and eggs
What are substitutes?
Increase in the price of one will increase the demand for another
What does a left shift to the demnad curve mean?
Decrease in demand
What does a rightward shift in a demand curve mean?
Increase in demand
Increased demand?
Increase equilibirum price and quantity
Decrease in demand?
Decrease in equilibirum price and quantity
Increase in supply?
Decrease in equilibrium price and increase in eq quantity
Decrease in supply?
Increase in equilibrium price and decrease in equilibrium quantity
3 Conditions of perfect competition?
- large number of consumers
- Large number of producers
- Producers sell identical or homogenous version of the product
Equilibrium algebra for the supply schedule?
P=2+3Q^s
Equilibrium prices and quantities for the demand schedule?
P=10-Q^d
What happens to people who lack sufficient income topurchase bare necessicites?
The government intervenes, may implement price ceiling
What is a price ceiling?
A legal maximum on the price at which a good can be sold
What is a price support?
Keep prices above their equilibrium levels
Governments needs to become an active buyer
