Chapter4: The Market Forces of Supply and Demand Flashcards
What is a Market?
Group of Buyers and sellers of a particular goodor service
What determines the demand of a product?
Buyers
What determines the supply of a product?
Sellers
What is a competitive market?
A market in which there are MANY buyers and sellers, meaning neither of them have an impact on the market price of a product.
They have limited control because many sellers are offering the same product
What are the 2 characteristics of a perfectly competitive market?
- The goods offered for sale are all exactly the SAME
- There are many buyers and sellers meaning neither a buyer or seller can influence the market price
What are buyers and sellers in a perfectly competitive market?
Price takers because they must accept the price the market determines
What is a monopoly?
Markets that have only ONE SELLER
This seller sets the price
What is the demand curve?
The relationship between price and quantity demanded on a graph
What is quantity demanded?
The amount of a good that buyers are willing/able to purchase
What is the Law of Demand?
The claim that, other things being equal, the quantity demanded of a good FALLS when the price of the good RISES
EX: expensive apples equal low quantity demanded
cheap bananas equal higher quantity demanded
What does it mean for the demand curve to shift to the RIGHT?
A shift to the right increases the quantity demanded or an increase in demand
What does it mean for the demand curve to shift to the LEFT?
A shift to the left decreases the quantity demanded or an decrease in demand
What is a normal good?
A good for which an increase in income leads to an increase in demand.
Increase Income = Increase Demand
EX: ice cream
What is an inferior good?
A good for which an increase in come leads to a decrease in demand
Increase Income= Decrease Demand
EX: Rent, food
What is a substitute?
Two goods for which an increase in the price of one leads to an increase in the demand for the other.
EX: because apples are more expensive, people are going to switch over to bananas because they’re cheaper. Bananas become higher in demand because they are a substitute for apples.
What is a complement?
Two goods for which an increase in the price of one leads to a decrease in the demand for the other
EX: because computers are more expensive, people aren’t going to buy software programs because those become expensive too. Software Programs go well with computers, hence why they become expensive too.
What does it mean to have a movement along the demand curve?
It means there has been a shift in the price of a good
What is a supply curve?
A graph of the relationship between the price of a good and the quantity supplied
What is quantity supplied?
The amount of a good that sellers are willing and able to sell
What is the Law of Supply?
The claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises.
What does it mean for the supply curve to shift to the RIGHT?
A shift to the right increases the quantity supplied or an increase in supply
What does it mean for the supply curve to shift to the LEFT?
A shift to the left decreases the quantity supplied or an decrease in supply
What does it mean to have a movement along the supply curve?
This means that there has been a change in the price of the good
What is an Equilibrium?
A situation in wihc the market price has reached the level at which the quantity supplised EQUALS the quantity demanded.
Both Supply and Demand Curves intersect at this point
