CH 4: Supply & Demand Flashcards
Alfred Marshall
Developed the supply and demand curve to demonstrate how a market reaches equilibrium
Invisible Hand Principle
The price mechanism influencing prices in the market context of buyers and sellers; impacts the allocation of resources (a role of prices)
The role of prices (4)
1) market prices communicate information, telling whether a price is too high or low
2) market prices coordinate the actions of market participants, settling out surpluses and shortages to equilibrium
3) market prices motivate economic players, motivating buyers at lower prices and motivating producers at higher prices
4) Market prices allocate scarce resources, with help of invisible hand
A term of disapproval referring to a situation in which seller prices goods or communities at a level much higher than is considered reasonable or fair
Price Gouging
Why might economists consider price gouging a beneficial thing?
In the area of disaster or emergency, higher prices could motivate suppliers to bring their scarce resources to areas that need them most, as it is most profitable in that location. An increase in price that matches market conditions can be normal and beneficial.
The practice of buying tickets to an event and reselling them for more than you paid for them
Scalping
Comparing two static equilibrium points on the supply and demand model to interpret what’s going on in the market and make predictions under certain circumstances
Comparative Statics Analysis
Surplus
Excess supply; price is relatively high compared to equilibrium and therefore pushes for prices to decrease
Shortage
Excess demand; price is relatively low compared to equilibrium and therefore pushes for prices to increase
Market Equilibrium
When Qd = Qs and Pd = Ps (resulting in equilibrium quantity Qe and equilibrium price Pe)
(Note: the opposite is called disequilibrium, resulting in surplus or shortage)
