03 14 2013 Chapter 4 Market A group of buyers and sellers of a particular good or service Competitive Market A market in which there are many buyers and many sellers so that each has a little impact on the market place Quantity Demanded The amount of a good that buyers are willing and able to purchase Law of Demand The claim that other things equal the quantity demanded of a good falls when the price of the good rises Demand Schedule A table that shows the relationship between the price of a good and the quantity demanded Demand Curve A graph of the relationship between the price of a good and the quantity demanded Market Demand The sum of all the individual demands for a particular good or service in demand in demand Normal Good A good for which an increase in income leads to an increase Inferior Good A good for which an increase in income leads to a decrease Substitutes Two goods for which an increase in the price of one leads to an increase in the demand for the other Substitutes are goods that are typically used in place of one another hamburgers and hot dogs Complements Two goods for which an increase in the price of one leads to a decrease in the demand for the other Complements are goods that are typically used together such as computers and software Quantity Supplied The amount of a good that sellers are willing and able to sell Law of Supply The claim that other things equal the quantity supplied of a good rises when the price of the good rises Supply Schedule A table that shows the relationship between the price of a good and the quantity supplied Supply Curve A graph of the relationship between the price of a good and the quantity supplied Market Supply The sum of the supplies of all sellers Equilibrium A situation in which the market price has reached the level at which quantity supplied equals quantity demanded Equilibrium Price Market Clearing Price The price that balances quantity supplied and quantity demanded Equilibrium Quantity The quantity supplied and the quantity demanded at the equilibrium price Surplus Excess Supply A situation in which quantity supplied is greater than quantity demanded Movements along the supply and demand curves Shortage Excess Demand A situation in which quantity demanded is greater than the quantity supplied Movements along the supply and Law of Supply and Demand The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into demand curves balance another producer Absolute Advantage The ability to produce a good using fewer inputs than Opportunity Cost Whatever must be given up to obtain some item Comparative Advantage The ability to produce a good at a lower opportunity cost than another producer Imports Goods produced abroad and sold domestically Exports Goods produced domestically and sold abroad Information Buyers determine the demand for a product Sellers determine the supply for a product Price and Quantity are determined by ALL buyers and sellers as they interact in the market place not just one In a competitive market each seller has limited control over the price because other sellers are offering similar products Perfectly Competitive Markets The goods offered for sale are all EXACTLY the same So many buyers and sellers that one has no influence over the market price Buyers and Sellers are PRICE TAKERS DEMAND SHIFTS on the DEMAND CURVE occur when something happens to alter the quantity demanded at a given price When something changes that isn t on the X or Y axis Shifts to the right if there is an INCREASE in demand Shifts to the left if there is a DECREASE in demand Most important shifts are Change in Income Change in the prices of related goods Changes in Tastes Change in Expectations Storage Change in the number of buyers MOVEMENTS on the DEMAND CURVE occur when there is a change in either of the variables on the X and Y axis Ex Tax Increase the Price of a good SUPPLY SHIFTS on the SUPPLY CURVE occur when any change that raises or lowers the quantity the sellers product at any given price Shifts to the right if there is an INCREASE in supply Shifts to the left if there is a DECREASE in supply Most important shifts are Changes in Input Prices Products needed to make final product Changes in Technology Change in Expectations Storage Change in the number of sellers MOVEMENTS on the SUPPLY CURVE occur when there is a change in the price of the good itself EQUILIBRIUM sell supply and demand At the equilibrium price the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to Actions of buyers and sellers naturally move markets toward equilibrium of In the case of a surplus suppliers respond by decreasing prices which increases demand which then leads to a decrease in quantity supplied which was their goal In the case of a shortage suppliers can increase prices without losing any sales since the demand is so high SUPPLY refers to the position of the supply curve QUANTITY SUPPLIED refers to the amount suppliers wish to sell A SHIFT in SUPPLY CURVE is called a CHANGE IN SUPPLY A movement ALONG the SUPPLY CURVE is called a CHANGE IN QUANTITY SUPPLIED DEMANDED A SHIFT in DEMAND CURVE is called a CHANGE IN DEMAND A movement ALONG the DEMAND CURVE is called a CHANGE IN QUANTITY
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