Mankiw, Principles of Microeconomics, 7th ed, ch 4

a group of buyers and sellers of a particular good or service

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

the amount of a good that buyers are willing AND able to purchase

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

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

a graph of the relationship between the price of a good and the quantity demanded

a good for which, other things equal, an increase in income leads to an increase in demand

a good for which, other things equal, an increase in income leads to a decrease in demand

two goods for which an increase in the price of one leads to an increase in the demand for the other

two goods for which an increase in the price of one leads to a decrease in the demand for the other

the amount of a good that sellers are willing and able to sell

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

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

a graph of the relationship between the price of a good and the quantity supplied.

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

the price that balances quantity supplied and quantity demanded

the quantity supplied and the quantity demanded at the equilibrium price

a situation in which quantity supplied is greater than quantity demanded

a situation in which quantity demanded is greater than quantity supplied

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

b. If prices are too high
i. Qs > Qd → Surplus (Qs-Qd)
ii. Leads to a downward pressure on the price until Qs = Qd
c. If prices are too low
i. Qs < Qd → Shortage (Qd-Qs)
ii. Leads to an upward pressure until Qs = Qd

a bunch of little businesses near a large one (Walmart beside a bunch of mom and pop's)

i. Prices don't change demand, only QD can:
1) Income
a) If income goes up, the demand for normal goods goes up (new cars, new clothes, education...)
b) If income goes up, the demand for inferior goods (bus passes, used cars, thrift shopping, ramen...) goes down
2) Tastes and preferences
a) Affected by time of year, public perception, advertisement, news, acts of god
3) Prices of Related Goods
a) If the price of good 1 goes up, the demand of good 2 goes up (substitutes)
b) If the price of good 1 goes up, the demand of good 2 goes down (compliments)
4) Expectations
a) If the price of a good is expected to rise tomorrow, the demand for it today goes up
5) Number of Buyers
a) Market demand is the sum of individual demand curves

i. Shows the relationship between the price and quantity demanded

ii. If price goes up, and quantity demanded goes down = negative relationship between P and QD

iii. If D goes up, and QD goes up at all prices = demand curve shifts right

iv. If D goes down, and QD goes down at all prices = demand curve shifts left

i. Prices cannot change supply, but what can:
1) Input (Factor) Prices
a) If price of input goes up, the supply will fall
2) Technology
a) Lowers the cost of production, therefore it causes supply to go up
3) Expectations
a) If input prices are expected to rise tomorrow, the supply will increase today
b) If prices of a good are expected to rise tomorrow, the supply will decrease today
4) # of Sellers
a) Market supply represents the sum of individual supply curves

i. Shows the relationship between P and QS

ii. QS = amount of a good or service a seller is willing and able to sell

iii. If P goes up, and QS goes up = positive relationship between P and QS

iv. If Supply goes up, and QS goes up at all prices = shifts right

v. If S goes down, and QS goes down at all prices = shifts left

If one or more determinants change, how does it change the equilibrium?

1) What shifts? 2) What direction? 3) What is the new equilibrium?

1) Supply shifts
2) Price ↓, supply ↑, shifts →
3) New price is P2, new quantity is Q2

1) Demand shifts (related goods, substitutes)
2) Shifts →
3) Price of used cars ↑, demand for new cars ↑

1) Both supply and demand shift
2) Supply ↑, Demand ↑
3) Qunatity sold ↑, Price (depends on the shift; ambiguous)

supply, quantity demanded. In this case, an increase in supply will cause the equilibrium price to decrease, resulting in a movement along the demand curve. The demand curve itself remains unchanged, but the quantity demanded is affected.

When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes. If movie tickets and DVDs are substitutes and the price of DVDs increases, this means the demand for movie tickets will also increase. This results in the demand curve shifting to the right.

you must add the number of items that all consumers have consumed/bought