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 producto A change in demand is a shift of the ENTIRE demand curve, caused by a change in anything that affects your willingness or ability to buy, other than the product price- 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 priceo Preferenceso 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 anothero Income Normal good- good for which demand INCREASES when income increases Inferior good- good for which demand DECREASES when income increaseso Demographic characteristicso 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 priceo Prices of factors of productiono Returns from alternative activitieso Technologyo Seller expectationso 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 othero Product markets- markets in which firms supply goods and services demanded by householdso Factor markets- markets in which households supply factors of production- labor, capital, and natural resources- demanded by
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