CHAPTER 3 Flashcards
Market
group of buyers and sellers with the potential to trade with each other.
economy is the collection of markets.
product market
market in which firms sell goods and service to households
resource market
market in which households that own resources sell them to firms
draw circular flow model of economy
check
Imperfectly competitive market
markets where individual buyers or sellers can control or influence the price
ex) Microsoft
perfectly competitive market
buyers and sellers confronted with a market price can do little or nothing about.
ex) standardized product - wheat
Quantity Demanded
number of units that all buyers in a market would choose to buy over a given time period, given the constraints they face
–> tells us how much households would choose to buy taking account the opportunity cost of their decisions.
constraints of buyer
limited spending power –> OC
Law of Demand
As the price of a good increases, and everything else remains the same, the quantity demanded decreases
Demand Schedule
list of quantities demanded at different prices, ceteris paribus
demand curve
relationship between the price of a good and the quantity demanded
Shift and movement along demand curve
change in price - movement along
all other variables other than price - shifts
Change in quantity demanded vs change in demand
Qd - movement along curve
change in demand - shift of curve
diff btw Qd and demand
Demand is the quantity of a good or service that consumers are willing and able to buy at given prices during a period of time. whole curve
Quantity demanded is the amount of a good or service people will buy at a particular price at a particular time. point in curve
Factors that shift the demand curve
Income - the amount that a person/firm makes over a particular period
normal and inferior good
wealth - the amount that a person/firm owns, at a particular time, minus amount owned
price of related goods
substitute and complement goods
population
expected price
tastes
gov. subsidy and tax
Normal Good
A good that people demand more as income rises
Inferior Good
A good that people demand less as income rises
Substitute
A good that replaces another good.
Increase in price of substitute increases demand
Complement
A good that goes together with another good
Increase in price of complement decreases demand
Quantity Supplied
number of units of a good that all sellers in the market would choose to sell over some time period, given the constraints they face(cost of producing and selling)
goal of suppliers
to maximise profit
availability vs demand
availability doesn’t change the demand curve, but will affect price of good and amount ultimately bought –> movement along demand curve
Quantity supplied is hypothetical
no assumption about firm’s ability to sell the good.
Hypothetical Q - how much would suppliers sell, given their constraints, if they were able to sell all that they wanted
Quantity supplied depends on price
assume all other than price stays constant
law of supply
when the price of a good rises, ceteris paribus, the quantity of good supplied will rise
supply curve
upwards sloping relationship btw price of good and quantity supplied ceteris paribus
Factors that shift the supply curve
Input prices - all that is needed to produce goods and services.
price of alternatives - Alternate supply/ market - market/supply other than the one analyzed in which same good is sold.
increase in price of alternative decreases supply
decrease in price of alternative increases supply
technology
of firms
expected price
change in weather and natural events
government tax and subsidies
Equilibrium price and quantity
values for price and quantity in the market that once achieved, will remain constant until supply/demand curve shifts.
Price below equilibrium
Excess demand. buyers compete and offer higher price. less demanded and more supplied when price rise
price above equilibrium
excess supply. sellers compete to sell more, price decrease.
