competitive market a market that has many buyers and many sellers so no single nicer or seller can influence the price relative price the ratio of one price to another is an opportunity cost to calculate relative price we divide the money price of a good buy the money price of a basket of all goods price index Relative price tells us the opportunity cost of the good in terms of how much the basket we must give up to buy it quantity demanded is the amount that consumers plan to buy during a given time period at a particular price The quantity demanded is measured as an amount per unit of time greater the quantity demanded law of demand other things remaining the same the higher the price of a good the smaller the quantity demanded and the lower the price of a good the substitution effect when the price of a good rise other things remaining the same its relative price its opportunity cost rises Although each good is unique it has substitutes other goods that can be used in its place income effect when a price rises other things remaining the same the price rises relative to income faced with higher price and an unchanged income people cannot afford to buy all the things they previously bought Demand refers to the entire relationship between the price of a good an the quantity demanded of that good quantity demanded refers to a point on a demand the quantity demand at a particular price Demand Curve shows the relationship between the quantity demanded of good and its price when all other influences on consumers planned purchases remained the same a demand schedule lists the quantities demanded at each price when all the other influences on consumers planned purchases remain the same When any factor that influences buying planes changes other than the price of the good there is a change in demand Six main factors bring changes in demand they are changes in the prices of related goods expected future prices income expected future income and credit population preferences Prices of related goods the quantity of x that consumers plan to buy depends in part on the prices of substitutes for y Substitutes is a good that can be used fin place for another good a complement is a good that is used in conjunction with another good Normal good is one for which demand increases as income increases an Inferior good is one for which demand decreases and income increases ex as incomes increase the demand for air travel Normal good and the demand for long distance bus travel inferior good decreases Preferences determine the value that people place on each good and service change in quantity demanded a point on the demand curve shows the quantity demanded at a given price so a movement along the demand curve shows a change in quantity demanded quantity supplied of a good or service is the amount that producers plan to sell during a given time period at a particular time Law of supply other things remaining the same the higher the price of a good the greater is the quantity supplied and the lower the price of a good the smaller the quantity supplied Supply refers to the entire relationship between the price of a good and the quantity supplied of it supply curve shows the relationship between the quantity supplied of a good and its price when all other influences on producers planned sales remain the change in supply when any factor that influences selling plans other than the price of the good changes there is a change in supply Six main factors bring changes in supply prices of factors of production the prices of related goods and services expected future prices the number of suppliers technology the state of nature same equilibrium price is the price at which the quantity demanded equals the quantity supplied equilibrium quantity is the quantity bought and sold at the equilibrium price When the price is below equilibrium it is forced upward When the price is above equilibrium it is forced downward cid 127 cid 127 cid 127 cid 127 cid 127 cid 127
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