Topic 4 Flashcards
what is a market
a group of buyers and sellers
buyers determine the demand and sellers determine the supply
relative price
ratio of price to the price of its next best alternative
What is a competitive market
A single market with multiple sellers, no single seller can influence the price
Quantity demanded
Amount of a good or service a consumer is willing and able to purchase at any given price
What is the law of demand
The quantity demanded of good or service will decrease when the price increases
What is the demand schedule
A table that shows the relationship the price and quantity demanded
What is market demand
The sum of all individual demands for a good or service
What is the substitution effect
When the price of a good or service rises, consumers look for alternative options
Increase in demand
change in the demand
price stays the same
demand curve shifts to the right
opposite is true for a decrease in demand (left shift)
Income effect
When the price of a good rises relative to income consumers may not be able to pruchase the same quantities as before
What factors influence demand
Income
taste preferences
prices
demographics
expectations
future prices
future income
future availibility
factors that influence demand INCOME
normal good : an increase in income leads to an income in demand
Inferior good: increase in income leads to a decrease in demand
factors that influence demand PRICES
Substitutes : increase in price in one good increases the demand for alternative good
Complements : Increase in price of one good decreases the demand for another good
factors that influence demand TASTE
consumers tastes change, may buy more or less of the product
factors that influence demand DEMOGRAPHICS
larger the population, increases demand for all products
with respect to factors like age, race, gender
factors that influence demand EXPECTATIONS
future prices : an expected increase in the price tomorrow increases the demand today
Future income : an expected increase in income will increase demand
Product availibility: if consumers expect a shortage, demand increases today
NOTE opposites are true for each example
change in demand vs. change in qty demanded
change in quantity demanded : change in the price that causes a movement along the demand curve
Change in demand : any other change affecting the demand causes the entire demand curve to shift
If a producer supplies a product then they
have the resources and tech to produce it
can profit from making it
has made a definite plan to produce and sell it
What is quantity supplied
amount of good or service that a producer is willing and able to produce at a given price
what is the supply schedule
a table that shows the relationship between price and quantity supplied
what is the supply curve
a graph of the relationship between price and quantity supplied
Law of supply
holding everything constant the quantity of a supplied good increases when the price increases
law of supply graphs
quantity produced + = marginal cost +
MC= ^total cost / ^quantity
Quantity produced + = lowest price +
what is market supply
the sum of supplies of all producers of a particular good or service
Any change that increases the quantity supplied at price changes shifts the supply curve right
Any change that reduces the quantity supplied at every price change shifts the curve left
What factors influence market supply
input prices
tech
prices of related goods
number of other producers
state of nature
what is input price
price of input + = supply of good -
tech
advances create new products and lower cost of production
advances in tech + = supply of the good +
prices of related goods
price of substitute + = supply of good -
compliments
price of compliment + = supply of the good +
numbers of producers
more suppliers = less demand
expectations
future price + = supply -
what is state of nature
all natural forces that affect production
change in supply vs. change in quantity supplied
Quantity supplied : change in the price of a product, causes movement along the supply curve
Change in supply : any other change affecting the supply that causes the entire supply curve to shift
what is market equilibrium
shows relationship between supply and demand
equilibrium = allocative efficiency
how to deal with shortage and surplus
shortage = increase price to achieve equilibrium
surplus = decrease price to achieve equilibrium
what is market equilibrium
when the quantity supplied and the quantity demanded are equal
what is Equilibrium price
the price in which the quantity supplied = quantity demanded
what is equilibrium quantity
the quantity supplied = the quantity demanded at equilibrium price
where supply curve intersects with demand curve
shortage
quantity demanded > quantity supplied
price = lower than equilibrium price
surplus
quantity supplied > quantity demanded
price = higher than equilibrium price
law of supply and demand
states that the price of any good adjusts to bring the quantity supplied and quantity demanded into equilibrium
