Supply and Demand Flashcards
(16 cards)
What is a market?
A group of buyers and sellers of a particular product.
What defines a competitive market?
A market with many buyers and many sellers, where each has a negligible impact on the price.
What are the characteristics of a perfectly competitive market?
- Homogeneous goods.
- Buyers and sellers are so numerous that no one can affect the market price—each is a price taker.
What does demand come from?
The behavior of buyers; specifically, the quantity demanded is the amount that buyers are willing and able to purchase.
What is the law of demand?
The claim that the quantity demanded of a good falls when its price rises, other things being equal.
What is a demand schedule?
A table showing the relationship between the price of a good and the quantity demanded.
How is market demand calculated?
The quantity demanded in the market is the sum of quantities demanded by all buyers at each price level.
What causes shifts in the demand curve?
Non-price determinants such as income, prices of related goods, tastes, expectations, and population size.
How does income affect demand for normal and inferior goods?
Demand for normal goods increases with income (shifts right), while demand for inferior goods decreases with income (shifts left).
What is supply in economic terms?
The behavior of sellers; specifically, it refers to how much they are willing and able to sell at various prices.
State the law of supply.
The claim that quantity supplied rises when the price rises, other things equal.
What factors can shift the supply curve?
Changes in input prices, technology improvements, expectations about future prices, number of sellers, and natural/social factors.
Define equilibrium in a market context.
Equilibrium occurs when quantity supplied equals quantity demanded at a certain price level.
What happens during a surplus in a market?
Quantity supplied exceeds quantity demanded (excess supply), causing prices to fall.
Describe what occurs during a shortage.
Quantity demanded exceeds quantity supplied (excess demand), causing prices to rise.
Outline three steps to analyze changes in equilibrium.
- Decide whether an event shifts supply or demand curves (or both).
- Determine in which direction each curve shifts.
- Use supply and demand diagrams to see how shifts change equilibrium price and quantity.
