Topic 4: Supply and Demand

Question 1

Market

Answer 1

A group of buyers and sellers of G/S that determines how buyers and sellers interact

Question 2

Roles in the market

Answer 2

BUYER: CREATE DEAMND

SELLER: CREATE SUPPLY

Question 3

Examples of market

Answer 3

Car market
health care market

Question 4

What is the most important activity in the market

Answer 4

Determination of prices!

Question 5

What even is price?

Answer 5

2 DIMENSIONS:
1. the money needed ot buy it
2. the relative price: ratio of this goods prices in terms of the next best alternative good

Question 6

Competitive Market

Answer 6

Many buyers and many sellerrs, so no one individual player can influence the prices

Question 7

Market mode- Assumptings

Answer 7

-Perfect competition
-NO single player has too much influence
-All firms selling identical products
-No barriers to new firms entering market

Question 8

What is Demand DEFINTIION

Answer 8

You want it
You can afford it
YOU HAVE A PLAN TO BUY IT

Question 9

Quantity demanded

Answer 9

Amount of G/s that a consumer is WILLING AND ABLE to buy

Question 10

Demand Curve:
-Shape and why

Answer 10

-Downward sloping because as prices go up demands go down

Question 11

Demand schedule

Answer 11

A table that is used to create the demand curve (shows quantity demanded)

Question 12

LAW OF DEMAND
-define
- why does this occur? 2 REASONS

Answer 12

Holding everyhting constant, when the price fo a good rises, the QUANTITY demand of the good falls down

-SUBSTITUION EFFECT: when price of good goes up, consumers seek substitutes, thus the quantity demand for og good goes down

-INCOME EFFECT: when price of a good rises relative to income, consumers cant afford what they used to buy, lower buying power= lower quantity demand

Question 13

all economic supply demand graphs?

Answer 13

price Y AXIS
quantitity X AXIS

Question 14

What does an increase in demand look like on the graph?

Answer 14

Shifts the demand curve to the right!

Question 15

What does a decrease in demand look like on the graph?

Answer 15

Shifts the demand curve to the left

Question 16

Factors that influecne demand in the market (SHIFT THE DEMAND CURVE)
5

NORMAL GOOD VS INFERIOR GOOD (second hand)
and
SUBSTITUTION VS COMPLEMENT

Answer 16

Taste preferences: fluctuates

Income (goes UP=demand for normal good GOES UP)
(goes UP= demand for INFERIOR GOOD goes DOWN)

Population (goes UP=demand goes UP)

Expectations: (future prices goes UP=demand GOES UP)
(FUTURE PRICES go down= DEMAND GOES DOWN)

Price of related goods:
Substitution (goes UP= demand for normal good GOES UP)
Complement (goes UP= demand for normal good GOES DOWN)

Question 17

changing the quantitity demanded

vs

change in demand

why??

Answer 17

Changing the price of a good= CHANGE IN QUANTITY DEMANDED!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! this is a movement along the demand curve line

Any other change affecting demand (population etc)= CHANGE IN DEMAND!!!!!!!!!!!!!! this shifts the entire graph

because price is the only variable measured in our hcarats (y-axis); rest are not measured therefore curve shifts

Question 18

wHAT shifts the demand curve?

what represents movement along the demand curve?

Answer 18

-INCOME, price of related foods, taste, populaiton, expectations

Price of good itself