Chapter 4 - Supply and Demand Flashcards
What is a market?
A market is defined as a group of buyers and sellers of a particular good or service where buyers as a group determine the demand for a product and sellers as a group determine the supply of the product
What are the characteristics of a perfectly competitive market?
A perfectly competitive market is one with many buyers and sellers, where each buyer and seller is so small as to have little impact on the market price. It is characterized by goods offered for sale that are all exactly the same, and buyers and sellers are so numerous that no one can affect the market price.
What is the law of demand?
The law of demand states that, other things being equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.
What is the difference between individual demand and market demand?
Individual demand refers to the demand for a product by an individual consumer. Market demand refers to the sum of all individual demands for a good or service. Graphically, the market demand curve is found by horizontally summing the individual demand curves
What is the difference between a shift in the demand curve and a movement along the demand curve?
A shift in the demand curve is caused by a change in a variable that affects the quantity demanded at every price, such as income or tastes. A movement along the demand curve, on the other hand, refers to a change in the quantity demanded of a good that results from a change in the good’s price.
What is the law of supply?
The law of supply states that, other things being equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well.
What is the difference between individual supply and market supply?
Individual supply is the supply of a good by a single seller. Market supply is the sum of the supplies of all sellers in the market
What is equilibrium in a market?
Equilibrium in a market is a situation in which the price has reached the level where quantity supplied equals quantity demanded.
What is the equilibrium price?
The equilibrium quantity is the quantity supplied and the quantity demanded at the equilibrium price.
What are the three steps to analyzing changes in equilibrium?
To analyze changes in equilibrium, follow these three steps:
●Decide whether the event shifts the supply curve or demand curve (or perhaps both).
●Decide in which direction the curve shifts.
●Use the supply-and-demand diagram to see how the shift affects the equilibrium price and quantity
How do prices allocate resources?
Prices are the signals that guide the allocation of resources. Prices balance supply and demand and, in turn, determine how much of the good buyers choose to consume and how much sellers choose to produce
