Chapter 3 Demand and Supply Markets the institutions that bring together buyers and sellers o i e Farmer s markets eBay Amazon com and retail outlets Quantity demanded the quantity buyers are willing and able to buy of a good or service at a particular price during a particular period all other things unchanged Demand schedule table that shows the quantities of a good or service demanded at different prices during a particular period all other things unchanged Demand curve graphical representation of a demand schedule Change in quantity demanded movement along a demand curve that results from a change in price Law of demand states that for virtually all goods and services a higher price leads to a reduction in quantity demanded and a lower price leads an increase in quantity demanded all other things unchanged There is a critical diff between change in demand and change in quantity demanded o Change in quantity demanded is a movement ALONG the existing demand caused by change in the price of product anything that affects your willingness or ability to buy other than the product price o A change in demand is a shift of the ENTIRE demand curve caused by a change in Change in demand characterized by a shift in a demand curve Demand shifter variable that can change the quantity of a good or service demanded at each price o Preferences o Prices of related goods and services Complements if a reduction in the price of one good INCREAESES the demand for another Substitutes if a reduction in the price of one good reduces the demand for another Normal good good for which demand INCREASES when income increases Inferior good good for which demand DECREASES when income increases o Income o Demographic characteristics o Buyer expectations Quantity supplied quantity sellers are willing to sell of a good or service at a particular price during a particular period all other things unchanged Supply schedule table that shows quantities supplied at difference prices during a particular period all other things unchanged Supply curve graphical representation of a supply schedule Change in quantity supplied characterized by movement along the supply curve caused by a change in price Change in supply characterized by a shift in the supply curve Supply shifter variable that can change the quantity of a good or service supplied at each price o Prices of factors of production o Returns from alternative activities o Technology o Seller expectations o Natural events o Number of sellers Model of demand and supply uses demand and supply curves to explain the determination of price and quantity in a market Equilibrium price price at which quantity demanded equals quantity supplied Equilibrium quantity quantity demanded and supplied at the equilibrium price Surplus amount by which the quantity supplied exceeds the quantity demanded at the current price Shortage amount by which the quantity demanded exceeds the quantity supplied at the current price Circular flow model model that provides a look at how markets work and how they are related to each other o Product markets markets in which firms supply goods and services demanded by households o Factor markets markets in which households supply factors of production labor capital and natural resources demanded by firms
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