Unit 1 AOS 2 Flashcards
(17 cards)
market
an institution where buyers and sellers of a particular good / service negotiate an agreeable / equilibrium price
market structure
nature and level of competition that exists in particular markets
market power
ability of sellers to set or control the price of the goods / services they sell
demand
amount of a good / service that consumers are willing / able to purchase at different prices during a given time
law of demand
states that, ceteris paribus, the quantity of a particular good / service that buyers are willing / able to purchase varies inversely with the change in price
quantity demanded
total amount of specific good / service that consumers are willing / able to purchase at a specific price during a given time
supply
amount of good / service that sellers are willing / able to produce / sell at different prices during a given time
law of supply
states that, ceteris paribus, the quantity of a particular good / service that sellers are willing / able to produce / sell varies directly with the change in price
quantity supplied
total amount of specific good / service that sellers are willing / able to produce / sell at a particular price during a given time
equilibrium
state of balance in the market when the quantity demanded exactly equals the quantity supplied for a good / service for a given period of time
equilibrium price
one and only price where amount of good / service buyers want to purchase is exactly equal to the amount producers want to sell
equilibrium quantity
one and only quantity where amount of good / service that buyers want to purchase is exactly equal to the amount producers want to sell
market mechanism
a system of decision making where the free forces of demand / supply operate to set relative prices of goods / services at equilibrium in a market
relative price
price of one good / service compared to price of another good / service
relative profit
profit that can be gained from producing one good / service compared to profit that can be gained from producing another good / service
when there is excess demand in the market
if price of good / service is below equilibrium, quantity demanded exceeds quantity supplied, creating shortage of the good / service in the market
this causes consumers to bid-up the price trying to obtain the scarce good / service
as price rises, contraction in demand + expansion in supply until market reaches new equilibrium point where quantity demanded exactly equals the quantity supplied and market is cleared
when there is excess supply in the market
if price of good / service is above equilibrium, quantity supplied exceeds quantity demanded, creating surplus of good / service in the market
this forces sellers to lower their prices to clear excess stock
as price falls, contraction in supply + expansion in demand until market reaches new equilibrium point where quantity demanded exactly equals quantity supplied and market is cleared
