Chapter 3 - Demand, Supply and Equilibrium Flashcards Preview

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Flashcards in Chapter 3 - Demand, Supply and Equilibrium Deck (43):
1

Market

  • A group of buyers and sellers of a good or service.

2

Perfect Competition

  • Many buyers and sellers act independently from each other.
  • Firms produce identical (homogeneous) products.
  • Firms can enter or exit the market freely.
  • No single individual can influence the market. 
  • Consumers and firms are price takers.

3

Price Taker

  • Buyers know the price they have to pay and sellers know the price they will preceive; they take the going price as given.

4

Market Price

  • When market demand meets up with market supply, a market price is established. 

5

Quantity Demand (Qd)

  • Is the amount of goof consumers (buyers) are willing and able to but at a given price, P.

6

Law of Demand

  • As P increases, Qd decreases and vice versa.
    • Ex. The higher the price, the less consumers are willing or able to buy of a good. 

7

Demand Schedule

  • Shows a clear relationship between price and quantity demanded. 

A image thumb
8

Demand Curve

  • Graph of demand schedule.

A image thumb
9

Change in Quantity Demanded

  • When the price of the good chanes, the Qd of the good changes.
  • Movement along  a demand curve when the price of the good changes.
  • The demand curve itself does not move. 

10

A Change in Demand

  • A shift in the demand curve when something other than the price of the good changes.
  • The demand curve itself moves.
  • If somethng increases in demand, the curve shifts to the right.
  • If something decreases in demand, the curve shifts to the left.

11

Income

  • The higher a consumers income, the more a consumer can buy of a good at any price.

12

Normal Good

  • If income rises, you demand more of the good.
  • Most goods are normal.

13

Inferior Good

  • If income rises, you demand less of the good.
    • Ex. Buying something you don't like because its all you can afford.

14

Price of Related Consumption Goods

  • Goods can either:
    • Complement eachother
    • Substitude for eachother
    • No relationship at all

15

Substitudes

  • Goods that could replace eachother because they are so close to eachothers chracteristics.

16

Complements

  • Goods that you tend to use together.

17

Consumer Expectations

  • If you think a price of a good you like is going to increase in the future, your demand for that good will increase today and the demand curve for today will shift right.
  • A change in expectations will lead to a change in demand and a shift of the demand curve.

18

Tastes

  • If a good steers consumers preferances. 
  • More buyers for the good, demand for the good increases, demand curve will shift right.

19

Population 

  • More people means more consumers.
  • Increase in population will shift the demand curve to the right.

20

Quantity Supplied (Qs)

  • The amount of a good producers are willing and able to sell at a given price, P.

21

Law of Supply 

  • As P increases, Qs increases and vice versa.

22

Supply Schedule

  • Shows a clear relationship between price and quantity supplied.

A image thumb
23

Supply Curve

  • Graph of supply schedule.
  • Shows a clear relationship between price and quantity supplied. 

A image thumb
24

Change in Quantity Supplied

  • When the price of the good changes, the Qs of the good changes.
  • Movement along a supply curve.
  • The curve does not move.

25

Change in Supply

  • When things other than the price of the good itself changes, the entire supply curve is affected.
  • The curve moves.
  • If something increases  in supply, the curve will shift right.
  • If something decreases in supply, the curve will shift left.

26

Input Prices

  • The price of an input into production increases, producing the good becomes less profitable and firms will offer fewer goods at any sale price.
  • The supply curve will shift left and vice versa.

27

Prices of Related Goods in Production

  • Goods can be substitutes in production, complements in production, or not related at all.

28

Substitudes in Production

  • If the selling price of one good increases, the quantity supplied of that good will increase and the supply of the other (substitude) good will decrease.
    • Ex. The quantity supplied of racing bikes will increase due to the price increase and the supply  of mountain bikes will decrease.

29

Compliments in Production

  • Goods that are produced together.

30

Technological Advancements

  • Advancements that ultimately make an item cheaper to produce will increase supply and shift the curve to the left.  

31

Producer Expectations

  • What sellers expect to market conditions to be in the future can affect their supply of a good today.
  • Current supply could increase or decrease depending on the sellers' reactions to expeted changes.

32

Number of Firms

  • More firms means more is produced overall, so an increase in the number of sellers will increase supply and shift the curve to the right.

33

Equilibrium

  • Situation where there is no incentive for anyone individually to change what they're doing because they cant make themselves better off.
  • No goods that remain unsold (no surplus) and no one who wants to buy at the going price goes without (no shortages).

34

The market clears when...?

  • The quantity demanded equals the quantity supplied.

35

Market Equilibrium

  • When Q= Qs.
  • The price where this happens is called equilibrium price and the quantity actually sold at the price is called equilibrium quantity traded.

36

Shortage

  • Excess demand.
  • Qexceeds Qs at such a low price.

37

Surplus

  • Excess supply.
  • Qs will exceed Qat such a high price.

38

Short Side of the Market

  • Whenever Qdoes not equal Qthe lesser of the two quantities will be the quantity that gets traded.
  • The short side of the market dominates.

39

Free Markets and Equilibrium

  • In markets where buyers and sellers are able to interact without any interfernce, the market will always return to equilibrium.

40

The Effects of Changing Prices on Demand and Supply Curves

  • Will not shift the curve.
  • Only shifts if something other than price is affected. 

41

Economic Shock

  • Something that happens outside of the market.
  • Shifts either or both supply and demand curves.
    • Ex. Tornado destroys wheat field. 

42

Summary of Equlibrium Price and Quantity Curve Shifts

A image thumb
43

The Algebra of Demand and Supply

  • Q= 0.2N + 0.05 PT - 11400PH 
    • Pis the price of a good (such as a house).
    • N is consumer income.
    • PT is the price of related goods.