Demand, Supply and market equilibrium in Perfect competition Flashcards
When there is specialization ?
There must be exchange trough markets.
A firm ?
An organization that transforms resources (inputs) into products (outputs).
Firms are the primary producing unit in a market economy.
All firms exist to ?
Transform resources into things that people want.
An entrepreneur is ?
A person who organized, manages, and assumes the risks of a firm, taking a new idea or product and turning it into a successful business.
Households are ?
The consuming units in an economy.
Product or output markets ?
Markets in which goods and services are exchanged.
Firms supply and household demand.
Input or factor markets ?
Markets in which resources used to produce products are exchanged.
A capital market ?
An input market in which households supply their savings for interest or for claims to future profits, to firms that demand funds to buy capital goods.
A Labor market ?
An input market in which households supply work for wages to firms that demand labor.
A land market ?
An input market in which households supply land or other real property in exchange for rent.
Factors of production ?
The inputs into the production process, land, labor and capital are 3 key factors of production.
Input and output market are connected ?
Trough the behavior of both firms and households.
Price are determined by ?
The interaction between demanders and suppliers
The Quantity Demanded ?
The amount of a product that a household would buy in a given period if it could buy all it wanted to the current market place.
Changes in the price of a product affect ?
The quantity demanded per period
Changes in factors, like income or preferences affect ?
Demand !
A demand schedule ?
A table showing how much of a given product a household would be willing to buy at different prices.
A demand curve ?
A graph illustrating how much of a given product a household would be willing to buy at different prices.
The law of demand ? (Marshall, 1890)
The negative relationship between price and quantity demanded: As price falls, quantity demanded increases. As prices rises, quantity demanded decreases.
Demand in a given period is ?
Limited, even at a zero price.
The income ?
The sum of all household’s wages, interests payments, rents and other forms of earnings in a given period of time.
It’s a flow measure.
Wealth or net worth ?
The total value of what a household own minus what it owes.
It’s a Stock measure.
Normal goods are ?
Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
Inferior goods are ?
Goods for which demands tend to fall when income rises.
Substitutes ?
Goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up.
Perfect substitutes ?
Are identical products.
Complementary goods ?
Are goods that “go together”, a decrease in the price of one results in an increase in demand for the other, and vice versa.
A shift of a demand curve is ?
The change that takes place in a demand curve corresponding to a new relationship btw quality demanded of a good and price of that food.
The shift is brought about by a change in the original conditions.
A movement along a demand curve is ?
The change in quantity demanded brought about by change in price.
Wren income increases ?
The demand for inferior goods shifts to the left and the demand for normal goods shift to the right.
Change in price of a good or service ?
Change in quantity supplied.
Movement along a supply curve.
Change in costs, inputs prices, technology, or prices of related goods and services
Change in supply.
Shift of supply curve.
A market supply ?
The sum of all that is supplied each period by all producers of a single product.
The equilibrium ?
The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.
Excess demand/Shortage ?
The condition that exists when quantity demanded exceeds quantity supplied at the current price.
Excess supply/Supply ?
The condition that exists when quantity supplied exceeds quantity demanded at the current price.
