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 areall 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- 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 ofa good falls when the price 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 - 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 wellSupply- 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 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 supplycurve is called a change in the quantity supplied and a movement along a fixed demand curve is called a change in the quantity
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