Chapter 4(supply and demand) Flashcards
What is the Study of supply and demand?
the study of how people react to changes in prices and external shocks
demand
how buyers behave and interact with sellers
supply
how sellers behave and interact with buyers
market
the medium through which buyers and sellers interact using prices
competitive market
a market in which there are so many buyers and sellers that no one player has the power to significantly affect the price
perfectly competitive market
a market in which there are so many buyers and sellers that no one player has the power to affect the price at all. In other words, all buyers and sellers are price takers
quantity demanded
the amount of a good that buyers are willing and able to purchase at a given price
law of demand
the idea that the quantity demanded of a good falls when the price rises
- higher price, less you buy
- lower price, more you buy
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
demand curve
a graph of the relationship between the price of a good and the quantity demanded
individual demand
quantity each buyer is willing and able to purchase at any given price
-quantity on x axis, price on y axis
market demand
the summation of all individual demands
what are 5 things that can shift the demand curve?
1) Income
2) price of related goods
3) tastes/preferences
4) expectations
5) number of buyers
inferior good
good in which an increase in income = a decrease in demand (ex: taco bell only eat when broke)
normal good
good in which an increase in income = increase in demand (ex: demand more sirloin when richer)
substitutes
2 goods in which an increase in the price of one caused an increase in the demand for the other (ex: hot dogs and hamburgers)
compliments
goods used 2gether: increase in the price of one = decrease in the demand of the other (ex: hot dogs and hot dog buns)
an increase in demand causes the demand curve to shift ___
right
a decrease in demand causes the demand curve to shift___
left
What is the difference in the changes of a demand curve if the demand increases or if the quantity demanded increases
- demand increases: shift entire curve right
- quantity demanded increases: movement along demand curve
quantity supplied
the amount of a good that sellers are willing and able to sell at a given price
law of supply
the idea the the quantity supplied of a good rises when the price (producers want to sell more when the price is high and less when the price is low)
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
supply curve
a graph of the relationship between the price of a good and the quantity supplied
individual supply
quantity each seller is willing and able to sell at any given price
market supply
the summation of all individual supply
what 4 things can shift supply curve?
1) input prices (cost of inputs used for production)
2) technology
3) expectations (ex: think price of an input will go up, supply less
4) number of sellers
an increase in supply shift the supply curve___and a decrease in supply shifts the supply curve___
- right
- left
how does and increase in quantity supplied effect the supply curve?
it causes a movement along the curve
equilibrium
when quantity demanded is equal to quantity supplied
equilibrium quantity
the quantity demanded and quantity supplied at the equilibrium
equilibrium price
the price at which quantity demanded and quantity supplied are equal
surplus
situation in which quantity supplied is greater than quantity demanded
shortage
situation in which quantity demanded is greater than quantity supplied
a price above the equilibrium price causes a ___
surplus
a price below the equilibrium price cases a ___
shortage
how does a change in price effect the supply and demand curves?
movement along the curves
