Supply and demand Flashcards
What is market demand?
Sum of individual demands
What are variables that influence buyers? (demand)
Income
Prices of related goods
Tastes
Expectations
Number of buyers
How do substitutes affect demand?
Increase in price of one leads to increase in demand for the other
How do complements affect demand?
Increase in price of one leads to decrease in demand for the other
What are variables that influence sellers?
Input prices (supply of a good moves in the opposite direction of the prices of inputs)
e.g. if prices of input increase, supply decrease
Technology
(turning inputs into output)
Advances in tech increase the supply
Expectations: future changes in prices !!
Number of sellers: market supply depends on how many sellers there are in the market
What is a perfectly competitive market?
One with many buyers and sellers.
These businesses produce an identical product.
Seller has no control over prices, prices will be determined by the market, and sellers will only choose how much to produce. (sellers = price takers)
No single buyer or seller has any influence over the market price
Buyers must accept the price the market determines (price takers)
Therefore final price is set by equilibrium where supply and demand curve meet. Both seller and buyer agree how much to pay for how much the quantity
What is a monopoly?
Only one seller in the market that sets the price
