Chapter 4 The Market Forces of Supply and Demand Markets and Competition Market is a group of buyers and sellers of a particular good or service Buyers determine demand of the product sellers determine supply Competitive market a market in which there are many buyers and many sellers so that each has a negligible impact on the market price o To reach a perfectly competitive market the goods offered for sale are all exactly the same and the buyers sellers are so numerous that no single buyer seller has any influence over the market price o Buyers and sellers in competitive markets aka price takers o One seller monopoly Demand to purchase Quantity demanded the amount of a good that buyers are willing and able Law of demand the claim that other things equal the quantity demanded of Demand schedule a table that shows the relationship between the price of Demand curve a graph of the relationship between the price of a good and a good falls when the price rises a good and the quantity demanded the quantity demanded Market demand the sum of all the individual demands for a particular good or service Increase in demand shifts the demand curve to the right Decrease in demand shifts the demand curve to the left Normal good a good for which other things equal an increase in income leads to an increase in demand buying ice cream Inferior good a good for which other things equal an increase in income leads to a decrease in demand bus rides Substitutes 2 goods for which an increase in the price of one leads to an increase in the demand for the other yogurt price rises so buy more ice cream Complements 2 goods for which an increase in the price of one leads to a decrease in the demand for the other Taste influences demand as well Supply sell Quantity supplied the amount of a good that sellers are willing and able to 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 all the individual sellers for a particular good Increase in supply Decrease in supply Inputs factors used in production of a good like sugar for ice cream decrease in price so now one makes more ice cream the supply of a good is negatively related to the price of the inputs used to make the good Technology expectations number of sellers also affect the supply of a good Supply and Demand Together Equilibrium a situation in which the market price has reached the level at which quantity supplied equals quantity demanded Equilibrium price the price that balances quantity supplied and quantity demanded Equilibrium quantity the quantity supplied and the quantity demanded at the equilibrium price Surplus a situation in which quantity supplied is greater than quantity demanded aka excess supply Shortage a situation in which quantity demanded is greater than quantity supplied aka excess demand 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 A shift in the supply curve is called a change in supply and a shift in the demand curve is called a change in demand A movement along a fixed supply curve is called a change in the quantity supplied and a movement along a fixed demand curve is called a change in the quantity demanded
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