Chapter IV "The Market Forces of Supply and Demand" Flashcards
These determine the quantity of an item sold and the price at which it is sold. In other words, the behavior of people as they interact with one another in competitive markets.
Supply @ Demand
A group of buyers and sellers of a particular good or service. Buyers determine the demand, while sellers determine the supply of a product.
Market
This group of people determine demand
Buyers
This group of people determine the Supply.
Sellers
So many buyers and sellers that each has no effect on the market price.
Competitive Market
To reach this form of competition, a market must have 2 characteristics: 1) The goods are exactly the same; 2) There is an infinitely large amount of sellers and consumers, so no one has influence over the market price.
“Perfectly Competitive” Market
The price of a commodity when sold in a given market.
Market price
One seller and they set the price
Monopoly
Amount of a good or service buyers are willing and able to purchase
Quantity demanded
Other things considered equal, as price rises, demand falters, vice Versa…
Law of Demand
A table that shows the relationship between demand and price (all other things held equal)
Demand schedule
The line relating price and quantity demanded on a “Demand schedule”
Demand Curve
Demand for this type of good falls when income falls
“Normal good”
A type of good that increases in demand as income decreases. (E.G. Bus rides instead of cab or car)
Inferior good
Similar enough products, when prices rise for one, demand skyrockets for the other. (e.g. “Ice-Cream and Yogurt”)
Substitutes
When a fall in price for one good increases the demand for another good. (e.g. Fudge & Ice Cream, Peanut butter and Jelly)
Compliments
Amount of any good or service that sellers are willing and able to sell.
Quantity Supplied
Other things equal, when the price of a good rises, the quantity supplied rises; on the other hand, when the price drops, so does the quantity supplied.
Law of Supply
A table that shows quantity of good and amount supplied
Supply Schedule
The curve relating price and quantity supplied. Generally a higher price means a higher quantity supplied. (All else equal)
Supply Curve
Sum of individual firm supplied across the market
Market Supply
All determinants in shifting the supply curve
Input Prices, tech, Expectations, Number of Sellers, Summary
Where the supply and demand curves of markets intersect.
Market’s “Equilibrium”
Price at supply and demand intersectional
Equilibrium price
Quantity of product at the equilibrium point
Equilibrium quantity
A situation of excess supply. Prices may also often fall. Movements along supply and demand curves not shifts.
Surplus
A quantity of good demanded exceeds that of good supplied.
Shortage
The price of and good adjusts to bring the quantity demanded and supplied into balance
Law of Supply and Demand
