Chap 4 - Supply/Demand Flashcards
(20 cards)
What is a market?
A place where buyers and sellers interact to trade goods and services.
What is a competitive market?
A market with many buyers and sellers where no one can control prices.
What is a perfectly competitive market?
A market where goods are identical, and all buyers and sellers are price takers.
What is the Law of Demand?
When price increases, quantity demanded decreases; when price decreases, quantity demanded increases.
What causes movement along the demand curve?
A change in the price of the good.
What factors shift the demand curve?
✅ Number of Buyers ↑ → Demand shifts right
✅ Income (Normal Goods) ↑ → Demand shifts right
✅ Income (Inferior Goods) ↑ → Demand shifts left
✅ Substitutes: Price of A ↑ → Demand for B shifts right
✅ Complements: Price of A ↑ → Demand for B shifts left
✅ Tastes and Expectations → Favorable change shifts demand right
What is the Law of Supply?
When price increases, quantity supplied increases; when price decreases, quantity supplied decreases.
What causes movement along the supply curve?
A change in the price of the good.
What factors shift the supply curve?
✅ Input Prices ↓ → Supply shifts right
✅ Technology Improvement → Supply shifts right
✅ More Sellers → Supply shifts right
✅ Future Expectations: Higher future prices → Supply shifts left
What is equilibrium price?
The price where quantity demanded equals quantity supplied.
What happens when price is above equilibrium?
Surplus (Qs > Qd) → Prices decrease to restore equilibrium.
What happens when price is below equilibrium?
Shortage (Qd > Qs) → Prices increase to restore equilibrium.
What happens if demand increases?
Price ↑, Quantity ↑
What happens if demand decreases?
Price ↓, Quantity ↓
What happens if supply increases?
Price ↓, Quantity ↑
What happens if supply decreases?
Price ↑, Quantity ↓
How do prices function in a market economy?
Prices adjust to balance supply and demand, guiding production and consumption.
Why do demand curves slope downward?
Higher prices reduce quantity demanded due to lower affordability.
Why do supply curves slope upward?
Higher prices incentivize producers to supply more.
What ensures market stability?
Equilibrium price where Qd = Qs.
