Microeconomics Test One: Chapter Three (Supply and Demand)

"Extra" or "additional" For instance, should Apple sell 300,000 more smartwatches? They should up until the point of where the marginal benefit of doing so equals the marginal cost

The additional benefit to a customer from consuming one more unit of a good or service

The additional cost of a firm from producing one more unit of a good or serivce

A perfectly competitive market is an assumption used in models of supply and demand. To be a "perfectly competitive" market, the market must have many buyers and sellers, all the sold products are identical, and there are no barriers to new firms entering the market.

The product's price

The amount of the product consumers are willing and able to buy based on its price. It is represented as a given point on the demand curve

The demand by all the consumers of a given good or service

The inverse relationship between the price of a product and the quantity demanded. If price goes down, quantity demanded goes up, and vice versa

The substitution effect and the income effect while holding everything else constant

Customers will buy more of a product when its price goes down because it will be cheaper compared to substitute goods. Ex. Apple starts selling its watch for $250, and Samsung is still selling their watch for $300. People will go with Apple*

*Take note of how the assumption of a perfectly competitive market witin the Law of Demand of both goods being exactly the same played into this

Customers will buy a larger quantity of a product because of their greater purchasing power given their fixed income. And vice versa.
Ex. Apples have dropped down to $2 per bag from $4. With the $5 I am allowed to spend on apples, I can now buy two bags

- Income
- Prices of related goods (substitute and complementary)
- Taste
- Population and demographics
- Expected future prices

Income increasing or decreasing effects people's power to purchase a product, depending on its type. If its a normal good, market demand will increase (shift to the right) with increasing income. If its an inferior good, market demand will decrease with increasing income (shift to the left)

The market demand for a product will decrease if its substitute's price decreases, because people will be more willing to buy the substitute (as discussed with the substitution effect in the Law of Demand). The market demand for a product will increase (shift to the right) if a complementary good's price decreases

The many subject influences on a customer to buy a product, which can include advertising campaigns.

An increasing population will increase the number of consumers and thus increase the demand for most products. Demographics (ex. race, age, gender, etc) will influence which products are demanded over others

If consumers are convinced that the price of a product will be lower in the near future, its current market demand will decrease (shift to the left)

The amount of a good or service that a company is willing and able to supply based on its price. It is represented as a given point on the supply curve

Relationship between the price of a product and the quantity supplied. Holding everything else constant, increases in prices of a product increases the quantity supplied, and vice versa.

- Prices of inputs
- Technological change
- Prices of related goods in production
- Number of firms in the market
- Expected future prices

Inputs is anything used in the production of a good or service. Ex. If the price of an input declines(becomes cheaper) then it will be more profitable to produce that good or service, and the market supply will increase (shift to the right)

Most of the time, technological change will increase efficiency by producing the same amount of goods or more with the same inputs as previous. This will increase the market supply (shift to the right)

Substitutes are alternative goods or services that a firm may produce. The market supply for a good will decrease (shift to the left) if its substitute good becomes cheaper to produce. An increase in the market supply of a complimentary good will cause a firm to increase the market supply of the good (shifting it to the right)

When new firms enter the market, the market supply increases, and vice versa.

If a firm believes a good will sell for more in the future, they 'll decrease their supply now and increase it later, and vice versa

The point where the desires of producers and consumers are reconciled. It will be the point where the supply and demand curve cross, representing the price producers are willing to sell for and the price consumers are willing to buy for. For the assumption of having a perfectly competitive market, we have to assume there are enough producers and consumers to make this happen.

Moving towards equilibrium. This occurs through suppliers cutting prices during a surplus and suppliers having the incentive to raise prices during a shortage

When the quantity supplied is greater than the quantity demanded, which usually occurs when a company sets the price too high and there are not enough people willing to buy it at that price

When the quantity demanded of a good or service is greater than the quantity supplied. This usually occurs when a company sets its prices too low and the good or service sells out

No, consumers will be willing pay the market price and suppliers will be able to supply them as much as they want. There will be no reason for the price to change unless the market demand or market supply curve shifts

No, it is usually shifting because of the variables that effect market supply and the variables that effect market demand

Before the equilibrium is adjusted, it leaves a surplus. When the equilibrium is adjusted, the point moves further down and to the right, so the price falls and the quantity increases.

Before the equilibrium is adjusted, it leaves a shortage. When the eqalibrum is adjusted, it moves further up and to the right, increasing supply and price.

It depends on which one shifted more

The equilibrium price and quantity increases

The equilibrium prices decreases and quantity increases

-Quantity increases, decreases, or is unchanged
- Price decreases

- quantity increases
- Price increases, decreases, or remains unchanged

- Quantity decreases
- Price increases

-Price increases
- Quantity increases, decreases, or remains unchanged

- Quantity decreases
- Price increases, decreases, or remains unchanged

Suppl=bottom to top. Demand=top to bottom

1. Supply to the left: quantity decreases, price increases
2. Supply curve to the right: Price decreases, quantity increases
3. Demand to the left: Quantity decreases, price increases
4. Demand cruve to the right: Quantity and price increase

At a given price, if the point at which quantity demanded is greater than the quantity supplied there will be a shortage. You will then have to subtract quantity supplied from quantity demanded. Visaully, the point of quantity supplied will come first, then the equilibrum in the middle, and then quantity demanded