Demand And Supply Flashcards
(17 cards)
What are the conditions for a competitive market
Many buyers. Many sellers. Both are price takers. The marketed product needs to be scarce for a price to emerge. The seller has to have property rights in the product and be permitted legally to transfer ownership.
The difference between money price and relative price.
The money price of a good is the amount of money needed to buy it. The relative price of a good is the ratio of its money price to the money price of the next best alternative, the opportunity cost.
If you demand something, then you…
Want it. Can afford it. I’m Plan to buy it.
Difference between demand and quantity demanded.
Demand is wanting something and planning to buy it. Quantity demanded is the amount consumers plan to buy during a particular time period at a particular price.
What is the law of demand
Other things remaining the same, when the price of a good rises, the quantity demanded of the good decreases; and when the price of a good falls, the quantity demanded of the good increases.
What does the law of demand result from
The substitution effect and the income effect
What is the substitution effect
When the relative price (opportunity cost) of a good or service increases, individuals seek substitutes for it, so the quantity demanded is reduced.
What is the income effect
When the price of a good or service increases relative to income, individuals overall real purchasing power falls, so that quantity demanded is likely to be reduced for this reason too.
What are the six main factors that change demand.
Prices of related goods. Expected future prices. Income. Expected future income and credit. Population. Preferences.
A change in the quantity demanded vs a change in demand.
A change in price results in a movement along the demand curve, which is a change in the quantity demanded. A change in factors other than the price of the good or service shifts the demand curve which is a change in demand.
What is the 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 lower the quantity supplied.
Producers are willing to supply a good only…
If they can at least cover their marginal cost of production.
What are the five main factors that change supply of a good
The prices of productive resources. The prices of related goods produced. Expected future prices. The number of suppliers. Technology. State of nature.
A change in the quantity supplied vs a change in supply.
A change in price results in a movement along the supply curve, which is a change in the quantity supplied. If the price remains the same but some other influence in the sellers plans changes supply changes and the supply curve shifts.
Equilibrium occurs where
Quantity demanded equals quantity supplied.
There is a surplus when
Quantity supplied is greater than quantity demanded.
There is a shortage when
Quantity demanded is greater than quantity supplied.
