Chapter 4: Supply and Demand Flashcards
market=
a group of buyers and sellers
2 characteristics of a competitive market
- nobody on their own has a significant impact on the price
- the goods/ services being sold are virtually the same
what is a price taker?
a price taker cannot choose the price they buy or sell at
quantity demanded=
the amount of a good or service that consumers are willing to buy at a certain price
The law of demand states that
as prices rise for a good/service, consumers will demand a lower quantity of it
demand curves always have a ___ slope
negative
quantity always falls as price rises
market demand=
the sum of the individual’s quantity demanded at each price
how do we represent “non-price factors” on a demand curve?
illustrate them by shifting the demand curve
“demand increases”=
demand curve has shifted right
“quantity demanded increase”=
consumers buy more of a good/ service
- does not mean that the demand curve is shifting right b/c could be due to a decrease in price
what are the 5 main non-price factors that can shift a demand curve
- # of buyers
- buyers’ income
- prices of related goods
- Buyers’ tastes/ preferences
- buyers’ expectations
an increase in the number of buyers will shift the demand curve ___
right
b/c quantity demanded at each price will increase
if an increase in income causes increase in demand for a good/ service, that’s called:
normal good (the normal case)
- eg vacations
if an increase in income causes decrease in demand for a good, that’s called:
inferior good
- eg public transit
2 goods are ___ if a rise in the price of one causes an increase in demand of the other
substitutes
eg. hotdogs and hamburgers
2 good are ___ if the rise in price of one good causes the decrease in demand for the other product
complements
eg hotdogs and ketchup
quantity supplied=
the amount of a good/ service sellers are willing to sell at a certain price
the law of supply states that
as prices rise for a good/service, quantity supplied by sellers will increase
supply curves will always have a ___ slope
positive
market supply=
the sum of the individual seller’s quantity supplied at each price
what are the 4 main non-price factors that can shift a supply curve?
- input prices and technology
- prices of related goods
- sellers’ expectations
- number of sellers
technological innovation and a fall in input prices would cause the supply curve to shift ___
right
2 goods are substitutes in production if:
a seller can produce either good with the same resources
2 goods are complements in production if
they’re jointly produced using the same resource
ie. the production of one good automatically causes the production of another good, usually as a byproduct.
Many Japanese dishes are based around a combination of rice and fish. If the price of rice falls, we would likely see:
a) the demand curve for rice shift right
b) a rise in the demand for fish.
c) no effect on the demand for either rice or fish since this is a common dish.
d) The demand for both rice and fish will rise.
b) a rise in the demand for fish
* why wouldn’t demand rise for rice as well?
Which of the below would NOT shift the supply curve?
a) consumers choosing to buy less of a good.
b) Businesses’ believe the price of the goods they sell will fall.
c) the cost of production for a business has increased due to higher transportation costs.
d) The introduction of a new technology in production.
a) consumers choosing to buy less of a good
