Markets any arrangement that enables buyers and sellers to get information and to do business with each other Some Markets are physical places i e NY stock exchange or a wholesale fish market Competitive market a market that has many buyers and many sellers so no single buyer or seller can influence the price Money Price the number of dollars that must be given up in exchange for it Relative price the ratio of one price to another is also the opportunity cost Divide the money price of a good by the money price of a basket of all goods called a price index tells us the opportunity cost of the good in terms of how much of the basket we must give up to buy it Demand something you want can afford and plan to buy causes us to make a decision about our wants refers to the entire relationship between the price of a good and the quantity demanded of it holding all other influences on consumers constant Wants the unlimited desires or wishes that people have for goods and services Quantity demanded the amount that consumers plan to buy during a given time period at a particular price measured as an amount per unit of time refers to a point on a demand curve the quantity demanded Law of demand Other things remaining the same the higher the price of a good the smaller is the quantity demanded and the lower the price of a good the greater is the quantity demanded The relationship is negative or inverse Higher price reduces the quantity because of substitution effect and income effect Substitution effect when the price of a good rises other things remaining the same its relative price rises Each good has substitutes other goods that can be used in its place When the price rises consumers switch to a substitute good Income effect when a price rises other things remaining the same the price rises relative to income When prices rise and their income stays the same people need decrease intake of some goods Demand curve shows the relationship between the quantity demanded of a good and its price when all other influences on consumers planned purchases remain the same slopes downward D for down Can also look at it as marginal benefit the willingness and ability to pay for a good Demand schedule lists the quantities demanded at each price when all the other influences on consumers planned purchases remain the same Change in demand when any factor that influences buying plans changes other than the price of the good Six factors cause changes in demand Prices of related goods Substitute in consumption a good that can be used in place of another good i e hot chocolate for coffee if coffee is too expensive person might switch to hot chocolate Complement in consumption a good that is used in conjunction with another good i e burgers and fries people usually eat burgers and fries together If a good is expected to increase in price in the future the demand will increase now as people stock up on that good Expected future prices Income When income increases there s a higher demand for goods When income decreases there s a lower demand for goods Normal good a good in which demand increases as income increases Inferior good good in which demand decreases as income increases Expected future income and credit When expected future income increases or credit becomes easier to get demand increases Population Preferences The larger the population the greater the demand The age group proportion of a population also determines what goods are in a higher demand Determine the value that people place on each good and service Depend on such things as weather information and fashion The Law of Demand The quantity of energy bars demanded Decreases if graph shifts left The price of an energy bar rises Changes in Demand The demand for energy bars Decreases if graph shifts left The price of a substitute falls The price of a complement rises The expected future price of an energy bar falls Income falls Expected future income falls or credit become harder to get The population decreases Increases if graph shifts right The price of an energy bar falls Increases if graph shifts right The price of a substitute rises The price of a complement falls The expected future price of an energy bar rises Income rises Expected future income rises or credit becomes easier to get The population increases Change in the quantity demanded a movement along the demand curve Movement along the demand curve if the price of the good changes but no other influence changes Shift of the demand curve if the price remains constant but some other influence changes Ex If more people work out at the gym then they will buy more energy bars Shifts to right for a demand increase shifts to left for a demand decrease Producer s Side Supply when a firm has the resources and technology to produce a good or service can profit from producing it and plans to produce it and sell it refers to the entire relationship between the price of a good and the quantity supplied of it holding all other influences on producers constant Resources and technology the constraints that limit what is possible in production Quantity supplied the amount that producers plan to sell during a given time period Law of supply Other things remaining the same the higher the price of a good the greater is the quantity supplied and the lower the price of a good the smaller is the quantity supplied Higher price leads to an increase in quantity supplied because marginal cost increases Supply curve shows the relationship between the quantity supplied of a good and its price when all other influences on producers planned sales remain the same slopes upward sUPply Can also be viewed as a minimum supply price curve which shows the lowest price at which someone is willing to sell Substitues in production goods that can be produced by using the same resources Complements in production goods that must be produced together Change in supply when any factor that influences selling plans other than the price of the good changes Prices of factors of production If the price of a factor of production rises the lowest price that a producer is willing to accept for that good rises supply decreases If price of jet fuel increases supply of air travel will decrease Prices of related goods produced Ex if the price of energy drinks rises firms switch production from bars to drinks Supply of energy bars decreases Expected future prices Number of suppliers Technology State of nature If expected future price of a good