Markets: Supply and demand Flashcards
Market
a group of buyers and sellers for a good or service. buyers determine demand and seller determine supply
Demand
Amount of goods a buyer is willing and able to buy.
Laws of demand
Price rises quantity decreases, price decreases quantity rises.
Demand shifters (pinte)
Price of related goods (complements, substitutes)
Income (normal or inferior goods)
Number of buyers (size of market)
Tastes or preferences
Expectations of the future
Supply
amount of goods sellers are willing and able to sell
Law of supply
Prices increase quantity increases price decreases quantity decreases
Supply shifters (TINE)
Technology
Input prices/ costs
Number of sellers
Expectations of future
Equilibrium
when the market supplied equals the market demanded. intersection point on graph
Shortage
excess demand. depicted below equilibrium on graph
Surplus
excess supply. depicted above equilibrium on graph
price ceilings
legal maximum price at which a good can be sold set by the government below equilibrium. reflects shortages
price floor
legal minimum price at which a good can be sold set by the government above equilibrium. reflects surplus.
what do price ceilings, price floors, shortages, surpluses create?
deadweight loss.
Consumer surplus
difference between what a consumer is willing to pay and how much they actually pay.
Producer surplus
difference between what a firm is willing to supply and how much they actually supply
