ch3 Flashcards
a competitive market has…
many buyers and sellers, same good or service
what is the supply and demand model of
its a model of a competitive market
five key elements of the supply and demand model
demand curve (down wards) supply curve (upwards) demand and supply curve shifts, market equilibrium point, changes in market equilibrium
quantity demanded definition
total amount that consumers desire/want to purchase
quantity bought definition
the actual purchase
ceteris paribus
all other variables are constant and not changing
demand schedule
how much of a good or service consumers will want to buy at different prices
demand curve stuff
graphical representation of the demand schedule, how much of a good consumers will buy at a certain price
causes for increase in demand
increase in the number of consumers (population) and a rise in the quantity demanded casing for the curve to shift to the right
shift in demand curve
an increase will be to the right a decrease will be to the left
movement along the curve
if the points allong the curve move but are still on the curve this is only caused by the change of quantity demanded becauses of a change in price so if the price goes down people will want a higher quantity moving the point down the curve but if the price goes up then people will want less and the point will be going up
causes for a shift in demand curve
changes in price of related goods substitutes, complements. change in income causing changes in taste, expectations and number of consumers, normal and inferior goods
substitutes
they fulfil the same desire / do the same thing ie coke and Pepsi if the price of the substitute falls the other goods price will fall as well
complements
two goods that are consumed together ie cereal and milk a fall in price will cause people to buy more of that other good
normal goods
this is stuff like name brand peanut butter a rise in consumer income causes an increase in demand
inferior goods
this is like a bus ticket or no name brand peanut butter a rise in consumer income causes a decrease in the deamand
quantity supplied
the amount of a product that firms want to sell, this is the amount they want to sell not the amount sold
want variables does the quantity supplied depend on
products price, price inputs, price of related goods, number of suppliers, technology
what are the price of the product and the quantity supplied related
positively related
supply schedule
how much of a good would be supplied at different prices
supply curve
positive slope and is going upwards shows how much of a good firms are willing to sell at a given price
causes for increase in supply
raises in the quantity supplied at any given price cause for the raised quantity supplied can be because of new incentives from gov increase demand or new technology
causes for shift in supply curve
change in price of production (factors), change in the price of related goods produced substitutes in production, complements in production, expected change in future prices, change in the number of suppliers, new tech, natural forces like weather or earthquakes that effect the supply chain
factors of production?
land, labor, capital and entrepreneurship
substitutes in production
can be made with the same resources ie wooden desk and door supply will increase if the substitution price falls
complements in production
must be produced together ie lumber and paper the supply will increase if the price of the complement rises
what will happen if the number of suppliers change
depending on if the number goes up or down the number of good produced will change
expected change in future prices
change in future prices will cause the supply to shift today but holding is not accounted for example if the prices will rise in a week the supply available today will go down and will rise in a week
technology effect on supply
new tech makes the supply chain more efficient boosting the production
state of nature effect
natural events like weather earthquakes etc can effect the supply or production of a item in most cases not good
individual supply curve and market supply curve
the market curve is the sum of all individual curves so just add up all the individual curves together
what is market equilibrium
when the quantity demanded is equal to the quantity supplied. this means there is no shortage or excess no need for market price to change but doesnt mean that every one is happy
who is happy and who is unhappy in equilibrium
everything to the left of the equilibrium is happy and every one to the right is unhappy
surplus/ excess supply
price is above the equilibrium point. sellers are selling less goods for a higher price. demand is not equal to supply since the supply will outweigh the demand
shortage/ excess demand
demand and supply aren’t equal since there is more demand then supply meaning that the seller is selling the good for too low of a price and to fix they should raise there price
what is the buyer forced to do when the demand is below the price
the buyer is forced to buy less goods at a greater price
