Market forces of supply & demand

Question 1

Market

Answer 1

a group of buyers and sellers of a particular product.

Question 2

competitive market

Answer 2

one with many buyers and sellers, each has a negligible effect on price

Question 3

perfectly competitive market

Answer 3

All goods exactly the same – Buyers & sellers so numerous that no one can affect market price – each is a “price taker”

Question 4

quantity demanded

Answer 4

the amount of the good that buyers are willing and able to purchase at a given price

Question 5

Law of demand

Answer 5

the claim that the quantity demanded of a good falls when the price of the good rises, other things equal (Ceteris Paribus)

Question 6

Demand schedule

Answer 6

a table that shows the relationship between the price of a good and the quantity demanded

Question 7

Market Demand versus Individual Demand

Answer 7

The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price.

Question 8

Demand Curve Shifters

Answer 8

• # of buyers
• Income
• Prices of related goods
• tastes
• expectations

Question 9

of buyers (DCS)

Answer 9

Increase in # of buyers increases quantity demanded at each price, shifts D curve to the right.

Question 10

Income (DCS)

Answer 10

• Demand for a normal good is positively related to income.
• Increase in income causes an increase in quantity demanded at each price, shifts D curve to the right.
• (Demand for an inferior good is negatively related to income. An increase in income shifts D curves for inferior goods to the left.)

Question 11

Prices of Related Goods (DCS)

Answer 11

• Two goods are substitutes if an increase in the price of one causes an increase in demand for the other.
• Two goods are complements if an increase in the price of one causes a fall in demand for the other.

Question 12

Tastes (DCS)

Answer 12

Anything that causes a shift in tastes toward a good will increase demand for that good and shift its D curve to the right.

Question 13

Expectations (DCS)

Answer 13

Expectations affect consumers’ buying decisions.

Examples: – If people expect their incomes to rise, their demand for meals at expensive restaurants may increase now. – If the economy sours and people worry about their future job security, demand for new autos may fall now.

Question 14

quantity supplied

Answer 14

the amount that sellers are willing and able to sell at a given price

Question 15

Law of supply

Answer 15

the claim that the quantity supplied of a good rises when the price of the good rises, other things equal

Question 16

Supply schedule

Answer 16

A table that shows the relationship between the price of a good and the quantity supplied

Question 17

Market Supply versus Individual Supply

Answer 17

The quantity supplied in the market is the sum of the quantities supplied by all sellers at each price

Question 18

Supply Curve Shifters

Answer 18

• Input Prices
• Technology
• # of sellers
• expectations

Question 19

Input prices (SCS)

Answer 19

A fall in input prices makes production more profitable at each output price, so firms supply a larger quantity at each price, and the S curve shifts to the right.

Examples of input prices: wages, prices of raw materials.

Question 20

Technology (SCS)

Answer 20

Technology determines how much inputs are required to produce a unit of output.

A cost-saving technological improvement has the same effect as a fall in input prices, shifts S curve to the right.

Question 21

of sellers (SCS)

Answer 21

An increase in the number of sellers increases the quantity supplied at each price, shifts S curve to the right

Question 22

expectations (SCS)

Answer 22

In general, sellers may adjust supply* when their expectations of future prices change. ( * If good not perishable)

Example: – Events in the Middle East lead to expectations of higher oil prices. – In response, owners of Texas oilfields reduce supply now, save some inventory to sell later at the higher price. – S curve shifts left.