Market Flashcards
Define Market
→ A market is a group of buyers and sellers of a particular good or service.
Role of Market
Efficiently allocate scarce resources.
Create wealth.
Improve human welfare.
Competitive Market
Market in which there are many buyers and many sellers so that each has a negligible impact on the market price.
Seller has limited control over the price, as other sellers are selling similar products.
Perfectly Competitive Market
The goods offered for sale are exactly the same.
There are so many buyers and sellers, that no sole individual has influence over the market price.
Monopoly
Market where there is only one seller, and therefore they dictate the price.
The Demand Curve
The quantity demanded of any good is the amount of a good that buyers are willing and able to purchase.
The Law of Demand
With all other factors equal, the quantity demanded of a good falls when the price of the good rises
Determinant of Demand
Price of substitutes and complements Income Tastes and Preferences Expectations Number of Consumers
Normal Good
A good for which, other things being equal, an increase in income leads to an increase in quantity demanded.
Inferior Good
A good for which, other things being equal, an increase in income leads to an decrease in quantity demanded.
Substitutes
When a fall of the price of good reduced the demand for another good, the two goods are called substitutes.
Price of substitute increases, consumers switch. Causes an outward shift of the demand curve and an increase in demand.
Complements
When a fall of the price of good increased the demand for another good, the two goods are called complements.
Price of other good rises quantity demanded of that good falls. Causes an inward shift of the demand curve. A decrease in demand.
The Supply Curve
The amount of a good that sellers are willing and able to sell.
Determinant of Supply
Price of related commodity Factor cost
Number of suppliers
Technology
Seller Expectation
Law of Supply
When everything else is equal, the quantity supplied of a good rises when the price of a good rises.
Equilibrium
A situation in which supply and demand have been brought into balance (middle point where the lines intersect).
Equilibrium Price
The price that balances the quantity supplied with the quantity demanded.
Equilibrium Quantity
The quantity supplied and the quantity demanded at the equilibrium price.
Surplus
A situation in which quantity supplied is greater than quantity demanded.
Suppliers are unable to sell all they want at the going price. Also known as excess supply.
Usually responded with cutting prices, leading to an increase in the quantity demanded and a decrease in the quantity supplied.
These are movements along the curve not shifts.
Shortage
Demanders are unable to buy all that they want at the going price.
There is a shortage of the good/excess of demand.
Sellers respond with increasing there price as they known that they will not lose sales.
These are movements along the curve not shifts.
Shifts in Curves vs Movements Along Curves
A shift in the demand/supply curve is known as a ‘change in demand/supply.’
A movement along a fixed supply/demand curve is also known as ‘change in the quantity supplied/demanded’
