question
Supply and Demand
answer
-Words economists use most often
-The forces that make market economies work
-Refer to the behavior of people as they interact with one another
-The forces that make market economies work
-Refer to the behavior of people as they interact with one another
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Market
answer
-A group of buyers and sellers of a particular good or service
-Buyers: Determine the demand for the product
-Sellers: Determine the supply of the product
-Buyers: Determine the demand for the product
-Sellers: Determine the supply of the product
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Markets
answer
_______________are highly organized - agricultural communities
_______________are less organized - ice cream in a particular town
_______________are less organized - ice cream in a particular town
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Competitive Market
answer
-Market in which there are many buyer and many sellers
-Sellers don't set the price
-Each has a negligible impact on market price
-Price and quantity are determined by all buyers and sellers as they interact in the marketplace
-Sellers don't set the price
-Each has a negligible impact on market price
-Price and quantity are determined by all buyers and sellers as they interact in the marketplace
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Perfectly competitive market
answer
-Goods offered for sale are all exactly the same
-Buyers and sellers are so numerous that:
no single buyer or seller has any influence over the market price
-At the market price:
buyers can buy all they want
sellers can sell all they want
-Buyers and sellers are so numerous that:
no single buyer or seller has any influence over the market price
-At the market price:
buyers can buy all they want
sellers can sell all they want
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Monopoly
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-The only seller in the market
-sets the price
-sets the price
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Other markets
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-Between perfect competition and monopoly
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Quantity Demanded
answer
-Amount of a good that buyers are willing and able to purchase
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Law of demand
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-Other things equal
-When the price of a good rises, the quantity demanded of the good falls
-When the price falls, the quantity demanded rises
-When the price of a good rises, the quantity demanded of the good falls
-When the price falls, the quantity demanded rises
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Demand
answer
-Relationship between the price of a good and quantity demanded
-Demand schedule: a table
-Demand curve: a graph - price on vertical axis, quantity on the horizontal axis
-Demand schedule: a table
-Demand curve: a graph - price on vertical axis, quantity on the horizontal axis
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Individual demand
answer
-All individual's demand for a product
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Market Demand
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-Sum of all individuals demands for a good or service
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Market Demand Curve
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-sum of the individual demand curves horizontally
-total quantity demanded of a good varies
-Add up # of demanded, and plot on curve/graph
-total quantity demanded of a good varies
-Add up # of demanded, and plot on curve/graph
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Increase in demand
answer
-Any change that increases the quantity demanded at every price
-Demand curve shifts right
-Demand curve shifts right
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Decrease in demand
answer
-Any change that decreases the quantity demanded at every price
-Demand curve shifts left
-Demand curve shifts left
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Variables that shift the demand curve
answer
-income
-prices of related goods
-tastes
-expectations
-number of buyers
*change in price is not one of these
-prices of related goods
-tastes
-expectations
-number of buyers
*change in price is not one of these
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Income
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-Shifts the demand curve
-involves normal and inferior goods
-involves normal and inferior goods
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Normal good
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-Other things remain constant, while an increase in income levels leads to an increase in demand.
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Inferior good
answer
-Other things remain constant, while an increase in income leads to a decrease in demand.
-Things like ramen noodles, generics, walmart vs. harris teeter
-Things like ramen noodles, generics, walmart vs. harris teeter
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Substitutes
answer
-involves 2 goods
-an increase in the price of one leads to an increase in the demand for another
-Getting tea instead of coffee because coffee is more expensive than tea
-an increase in the price of one leads to an increase in the demand for another
-Getting tea instead of coffee because coffee is more expensive than tea
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Complements
answer
-involves 2 goods
-an increase in the price of one leads to the decrease in demand for the other
-PB&J, bagels & cream cheese
-Increase in price of peanut butter means that people won't buy jelly to go along with it.
-an increase in the price of one leads to the decrease in demand for the other
-PB&J, bagels & cream cheese
-Increase in price of peanut butter means that people won't buy jelly to go along with it.
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Tastes
answer
-something becomes in style, we buy more of it
-change in ________:changes in demand
-change in ________:changes in demand
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Expectations about the future
answer
-Expect an increase in income leads to an increase in current demand
-Expect higher prices leads to an increase in current demand
-Expect higher prices leads to an increase in current demand
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Number of buyers
answer
-increased ____________ , market demand increases
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Quantity Supplied
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-Amount of a good sellers are willing and able to sell
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Law of supply
answer
-Other things equal
-When the price of a good rises, the quantity supplied of the good also rises
-When the price falls, the quantity supplied falls as well
-When the price of a good rises, the quantity supplied of the good also rises
-When the price falls, the quantity supplied falls as well
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Supply
answer
-Relationship between the price of a good and the quantity supplied
-supply schedule: a table
-supple curve: a graph (price on vertical axis, quantity on horizontal axis)
-supply schedule: a table
-supple curve: a graph (price on vertical axis, quantity on horizontal axis)
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individual supply
answer
A seller's individual supply
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Market supply
answer
Sum of supplies of all sellers for a good or service
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Market supply curve
answer
-sum of individual supply curves horizontally
-Total quantity of a good varies
-As a price of a good varies, al other factors that affect how much suppliers want to sell are constant
-Total quantity of a good varies
-As a price of a good varies, al other factors that affect how much suppliers want to sell are constant
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Increase in supply
answer
-Any change that increases the quantity supplied at every price
-Supply curve shifts right
-Supply curve shifts right
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Decrease in supply
answer
-Any change that decreases the quantity supplies at every price
-Supply curve shifts left
-Supply curve shifts left
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Variables that shift the supply curve
answer
-input prices
-technology
-expectations about the future
-number of sellers
-technology
-expectations about the future
-number of sellers
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Input prices
answer
-supply is negatively related to prices of inputs
-higher input prices: decrease in supply
-higher input prices: decrease in supply
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Technology
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-Advance in ____________: increase in supply
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Expectations about future
answer
-Affect current supply
-Expected higher prices, decrease in current supply
-Expected higher prices, decrease in current supply
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Number of sellers
answer
-_____________increases, the market supply increases
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Equilibrium
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**Supply and demand curves intersect
-Various forces are in balance
-A situation in which market price has reached the level where quantity supplied=quantity demanded
-Various forces are in balance
-A situation in which market price has reached the level where quantity supplied=quantity demanded
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Equilibrium price
answer
-Balances quantity supplied demanded
-Market clearing price
-Market clearing price
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Equilibrium quantity
answer
-Quantity supplied and quantity demanded at the equilibrium price
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Surplus
answer
-quantity supplied is greater than quantity demanded
-excess supply
-Downward pressure on price
-excess supply
-Downward pressure on price
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Shortage
answer
-quantity demanded is less than quantity supplied
-excess demand
-excess demand
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Law of supply and demand
answer
-The price of any good adjusts: to bring the quantity supplies and the quantity demanded for the good into balance(equilibrium)
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Analyzing changes in equilibrium
answer
1. Decide if the event shifts supply, demand or both curves
2. Decide if curve shifts to the right or the left
3. Use the supply and demand diagram to compare initial and new equilibrium and to see the effects on equilibrium price and quantity
2. Decide if curve shifts to the right or the left
3. Use the supply and demand diagram to compare initial and new equilibrium and to see the effects on equilibrium price and quantity
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Shifts vs. Movements
answer
-_________in supply curve results in a change in supply
-__________along a fixed supply curve results in a change in quantity supplied
vs.
-___________in the demand curve results in a change in demand
-____________along a fixed demand curve results in a change in the quantity demanded
-__________along a fixed supply curve results in a change in quantity supplied
vs.
-___________in the demand curve results in a change in demand
-____________along a fixed demand curve results in a change in the quantity demanded
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Supply and demand together
answer
-determine the prices of the economy's many different goods and services
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Prices
answer
-Signals that guide the allocation of resources
-Mechanism for rationing scarce resources
-Determine who produces each good and how much is produced
-Mechanism for rationing scarce resources
-Determine who produces each good and how much is produced
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