Chapter 4 - The Market Forces of Supply and Demand Flashcards
Market
A group of buyers and sellers of a particular good or service.
Competitive Market
A market in which there are many buyers and sellers so that each has a negligible impact on the market price.
Perfectly Competitive
Goods are that are offered are exactly the same, and no buyer or seller has a big influence over the price.
Monopoly
When a good or service only has one seller and they determine the price.
Quantity Demanded
The amount of a good that buyers are willing and able to purchase.
Law of Demand
The claim that, other things equal, the quantity demanded of a good falls when the price of the good rises.
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.
Market Demand
Sum of all the individual demands for a particular good or service.
Which way does the demand/supply curve shift if there is an increase in demand?
Right
Which way does the demand/supply curve shift if there is a decrease in demand?
Left
Normal Good
A good for which, other things equal, an increase in income leads to an increase in demand.
Inferior Good
A good for which, other things equal, an increase in income leads to a decrease in demand.
Substitute
Two goods for which an increase in price in one leads to an increase in demand for the other. Consumed in place of each other.
Complement
Two goods for which an increase in the price of one leads to a decrease in the demand for the other. Consumer together.
Things that lead to a shift in the demand curve
Income
Prices of Related Goods
Tastes
Expectations
Number of Buyers
Quantity Supplied
The amount of a good that sellers are willing and able to sell.
Law of Supply
The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.
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.
Market Supply
The sum of the supplies of all sellers.
Factors that influence a shift in the supply curve
Input Prices
Technology
Expectations
Number of Sellers
Equilibrium
A situation in which the price has reached the level where quantity demanded equals quantity supplied. The point where the supply and demand curves intersect on a graph.
Equilibrium Price
The price that balances quantity supplied and quantity demanded. The price at the equilibrium. Sometimes called the market clearing price.
Equilibrium Quantity
The quantity supplied and the quantity demanded at the equilibrium price. The quantity at the equilibrium.
Surplus
A situation in which quantity supplied is greater than quantity demanded. Sometimes called excess supply.
Shortage
A situation in which quantity demanded is greater than quantity supplied. Sometimes called excess demand.
Law of Supply and Demand
The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.
Three Steps to Analyzing Equilibrium
- Decide whether the event shifts the supply or demand curve (or both)
- Decide which direction the curve shifts
- Use supply and demand diagram to see how the shift changes the equilibrium price and quantity
