Chapter 8 Flashcards
What note of caution is offered wrt demand and supply analysis
Don’t use it to describe changes facing an individual firm (e.g. Apple & iPhones)
What are the 3 dimensions of a Market
- Product
- Geographic
- Time
Define Market Demand and Market Supply
Market demand describes buyer behavior
Market supply describes seller behavior in a competitive market
If price changes, quantity demanded increases or decreases (represented by a movement along the demand curve).
If a factor other than price (like income) changes, we say that demand curve increases or decreases (a shift of demand curve).
Define “movement along the demand curve”
When a change in price drives a change in demand
What is a controllable factor
Something that affects demand that a company can control
E.g. price, advertising, warranties, product quality, distribution speed, service quality, and prices of substitutes or complementary products also owned by the company
What is an uncontrollable factor
An uncontrollable factor is something that affects
demand that a company cannot control
E.g. income, weather, interest rates, and prices of substitute and complimentary products owned by other companies
What does a shift in demand curve represent
A change in a third variable
E.g. if the price of a substitute increases
What does a supply curve do
Describes the behavior of a group of sellers
and tells you how much will be sold at a given price
Supply curves slope upward - the higher the price, the higher the quantity supplied
How do supply curves differ from demand curves
Supply curves slow upward
that is, the higher the price, the higher the quantity supplied
What is market equilibrium
The prices at which quantity supplied equals quantity demanded
In market equilibrium, there are no unconsummated wealth-creating transactions
What is the mechanism for driving price to new equilibrium
Competition among buyers to buy and competition among sellers to sell
How do prices convey valuable information
Buyers signal their willingness to pay, and sellers signal their willingness to sell
They are the primary mechanism that market participants use to communicate with one another.
What is a Market Maker
Someone who incurs the costs of identifying high-value buyers with low-value sellers, bringing them together and devising ways of profitably facilitating transactions among them.
Goal: buy low, sell high
