lecture 2 chapter 4 Flashcards
demand
- You want it
- Can afford it
- Have made a definite plan to buy it
Supply
a firm supplies a good or service.
- Has the resources and the technology to produce it
- Is willing to produce it
- Has made a definite plan to produce and sell it.
Market:
a group of buyers and sellers of a particular good or service.
- Buyers as a group determine the demand for the product
- Sellers as a group determine the supply of the product
Markets take many forms:
- Physical markets
- Non-physical markets/ virtual markets.
- Auction market.
- Market for intermediate goods
- Black market
- Markets of different structures: monopoly, oligopoly, monopolistic competition and perfect competition.
Competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price.
Price and quantity
determined by all buyers and sellers as they interact in the marketplace.
Monopoly:
only seller in the market and this seller sets the price.
Quantity demanded:
the amount of a good that buyers are willing and able to purchase.
Demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
Demand curve
a graph of the relationship between the price of a good and the quantity demanded.
c
Law of demand
the negative relationship between price and quantity demanded: ceteris paribus, as price rises, quantity demanded decreases; as price falls, quantity demanded increases during a given period of time, all other things remain constant.
increase in demand.
Any change that increases the quantity demanded at every price shifts the demanded curve to the right
decrease in demand
Any change that reduces the quantity demanded at every price shifts the demand curve to the left
5 main factors that change demand are
- Income
- The prices of related goods
- Expected future prices.
- Population
- Preferences
Factors that shift the demand curve
Income:
- Normal good: a good for which, other things equal, an increase in income leads to a decrease in demand.
- Inferior good: a good for which, other things equal, an increase in income leads to a decrease in demand.
Prices of related goods:
- Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the other
- Complements: 2 goods for which an increase in the price of one leads to a decrease in the demand for the other.
Factors that shift the demand curve
- Tastes
- Expectations
- Number of buyers
Quantity supplied:
the amount of a good that sellers are willing and able to sell
Supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
Law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.
- Downward sloping curve.
Market supply
the sum of supplies of all sellers.
6 main factors that change supply of a good are.
- The prices of factors of production
- The prices of related goods produced
- Expectation
- The number of suppliers
- Technology
Any changes that increase the quantity supplied at every price shifts the supply curve to the right and is called an
increase in supply.
An change that reduces the quantity supplied at every price shifts the supply curve to the left and is called a
decrease in supply
The main factors that change supply of a good are
- The prices of factors of production
- The prices of related goods produced
- Expected future prices
- The number of suppliers
- Technology
More suppliers of a good
greater supply (shifts the supply curve right)
Advances in technology create new products and lower the cost of producing existing products.
- Advances – increase supply and shift the supply curve rightward.
Equilibrium
a situation in which the price has reached the level where quantity supplied equals quantity demanded
Equilibrium price
the price that balances quantity supplied and quantity demanded:
Equilibrium quantity
the quantity supplied and the quantity demanded at the equilibrium price.
Surplus
quantity supplied is greater than quantity demanded.
Shortage
quantity demanded is greater than quantity supplied.
Prices above the equilibrium price
- a surplus forces the price down.
At prices below the equilibrium price
a shortage forces the price up.
At the equilibrium price
- buyers’ plans and seller’s plans agree and the price doesn’t change until an event changes demand or supply.
Law of supply and demand:
the claim that the price of any good adjusts to bring the quantity demanded for that good into balance.
