chapter 3 Flashcards
5 key elements of the competitive market model
demand curve
supply curve
shifts of supply and demand
equilibrium
changes in equilibrium
demand curve
graphical representation showing the quantity demanded and price
it always slopes downward –> the more the price the less quantity demanded (law of demand)
quantity demanded
the actual amount of good and service consumers are willing to buy at a specific price
shift of the demand curve vs. movement along the curve
shift is a change of the quantity demanded at any given price (increase>right, decrease>left)
movement is a change in the quantity demanded due to a change in price
5 factors in the shift of the demand curve
changes in:
prices: substitues (oil and gas) or complements (car and gasoline)
income: normal good (inelastic demand, vertical slope, the qnt. demanded doesn’t change even if the prices rise) or inferior goods (elastic demand, horizontal slope, the qnt. demanded changes if the prices rise)
tastes
expectations
numeber of consumers: individual demand of a good –> sum of individuals is the MARKET DEMAND CURVE
supply curve
graph that shows the relationship between quantity supplied and price
it always slopes upward, direct proportionality
quantiity supplied
the actual amount of goods and services producers are willing to sell depending on the price they are offered
shifts of the supply curve vs. movement along the curve
shift is a change of the quantity supplied at any given price (increase>right, decrease>left)
movement is a change in the quantity supplied due to a change in price
5 factors in the shifts of the supply curve
changes in :
- input prices: input are good used to produce another good, if the price rises the final product will be more difficult to produce, thus changes in supply
- prices: substitues in production and complements in production depend on each other in relation to the cost. if one is pricier the other will be more produced …
- tech
- expectations
- number of producers: individual supply curve is what each producer produces at each price –> MARKET SUPPLY CURVE is the sum of the individuals
market equilibrium
in a competitive market, where quantity supplied and quantity demanded meet (equilibrium quantity) at the same price (equilibrium price)
market price
markets where prices and quantities converge for the same good (souvenir shops) and the price is uniformed
surplus
quantity supplied exceed the demanded
the price is above the equilibrium price
shortage
quantity demanded exceeds the quantity supplied
price is below the equilibrium price
market equilibrium changes
when demand or supply curve shift
- when demand decreases the equilibrium price falls
- when demand increases the equilibrium price rises
- when supply falls the equilibrium price falls
consumer surplus
those at high end of the demand curve that would have bought the good at a higher price than the equilibriium market but they have it for less
