Chapter 4: The Market Forces of Supply and Demand Flashcards
A market must satisfy these 3 conditions to be considered a “perfectly competitive market”
- the product is identical
- there are multiple buys and sellers
- free entry and exit
The foreign exchange rate is a perfect example of a
perfectly competitive market
the quantity demanded for a good by an individual at different prices is
Individual Demand
Determinants of individual demand include:
- the price of the product
- income
- prices of related goods
- tastes
- govt policies such as taxes
- expectations
Price ________ as demand _______
decreases, increases
the market quantity demanded at different prices is the
Market Demand
the market quantity demanded and the price are_________ related
negatively related
an increase in price _____________ the quantity demanded
reduces
“an increase in the price of a good reduces its market quantity demanded” is the Law of
Demand
A market demand curve depicts
the market quantity demanded and different prices, downward sloping
a change in price causes a _________ along the demand curve
movement
Income determinants of market demand include
Normal Goods and Inferior Gods
Price determinants of related goods include
the price of a substitutes, the price of complements, tastes, expectations, govt polices such as taxes, number of buyers
a Normal Good is a good for which
other things equal, an increase in income leads to an increase in demand
an increase in demand shift the market demand curve to the
right
An Inferior good is a good for which
other things equal, an increase in income leads to a decrease in demand
a decrease in demand shifts the demand curve to the
left
for a Normal Good; if income increases, demand _______ and the demand curve_____________
increases; shifts to the right
for a Normal good; if income decreases, demand _______ and the demand curve _____________
decreases; shifts to the left
for an Inferior Good; if income increases, demand __________ and the demand curve _____________
decreases; shifts to the left
for and Inferior good; if income decreases, demand __________ and the demand curve ______________
increases; shifts to the right
people reducing their consumption of margarine as their income increases is an example of
an Inferior Good
people consuming more margarine as their income increases is an example of a
Normal Good
a change in the price of a product represents a
movement along the demand curve
a change in the other determinant of the demand for a product represents a
shift in the demand curve
the quantity supplied of a good by an individual produced at different prices is the
Individual Supply
Determinants of Individual Supply include;
- the price of the product
- input prices
- technology and technological progress
- govt policies such as taxes
an upward individual supply curve depicts a
positive relationship between the price and an individual quantity supplied
the market quantity supplied at different prices is the
Market Supply
as price increases, individual or market supply price
increases
an increase in an input price ___________the production cost
increases
technology determines
the production process used in producing a good
Suppose the government imposes a tax on producers producing a product. Producers not only have to pay for all the inputs required in the production, but they also need to pay taxes. Taxes cause a
decrease in profit and reduce supply (The market supply curve shifts to the left)
market supply __________ as individual supply ___________
decrease; decrease
the market supply shifts to the left if there is an _________ in an input price
increase
what was the main reason for the collapse of the soviet union economy?
poor allocation of the resources
what determines market equilibrium
market demand and market supply
market equilibrium is referred to as
the state of the market in which no further changes will occur
at what point is the market equilibrium at
the intersection
When market demand=market supply we are at a
equilibrium, no change in price
If market demand is less than market supply
we have excess supply, price surplus
if market demand is greater than market supply
we have excess supply, price shortage
If something happened that affected equilibrium whether it’s an event or catastrophe,etc.The price needs to
adjust for bringing the market to the new equilibrium where demand equals to supply once again.
a change in the equilibrium price will lead to
a change in the equilibrium quantity
other things equal, the quantity supplied of a good rises when a price of the good rises is the law of
supply
