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 negligible 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.Normal Good- A good for which an increase in income leads to an increase in demand.Inferior Good- A good for which an increase in income leads to a decrease in demand.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 (hamburgersand 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 goodrises when the price of the good rises.Supply Schedule- A table that shows the relationship between the price of a goodand 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 demand curves).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 balance.Absolute Advantage: The ability to produce a good using fewer inputs than another producer.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 alterthe 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)SUPPLYSHIFTS 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 ▪ At the equilibrium price, the quantity of the good that buyers are willing andable to buy exactly balances the quantity that sellers are willing and able to sell.▪ Actions of buyers and sellers naturally move markets toward equilibrium of supply and demand.▪ 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”▪ 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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