Flashcards in Week 2- Demand, Supply, and Market Equilibrium notes Deck (36):
A big bubble where buyers and sellers communicate. Buyers and sellers provide competition.
Curve that shows amount of goods that people are WILLING and ABLE to purchase.
Law of Demand-
price falls, quantity demanded rises. Inverse relationship.
Law of Diminishing Marginal Utility-
Consuming the same unit makes you less happy and satisfy.
If Purchasing Power increases, Price decreases.
As price increases, consumer seeks lower cost alternatives.
As income increases, consumer seeks for high quality goods and more expensive stuff.
Determinants of demand-
1. Consumer taste.
2. Amount of buyers in market.
3. Consumer income (normal or inferior).
4. Price related goods (substitute and complementary goods).
5. Consumer expectations.
How to find Market demand-
By adding quantity demanded from all consumers at certain price to get market demand.
Change in demand?
Shift right= increase. Shift left= decrease in demand.
Varies directly w/ incomes.
Replace other goods. Ex: Price of pepsi increase, you not going to buy pepsi anymore. Therefore, your demand for Coke increase.
If price of a good goes up, price of related goods decrease.
Ex: Hotdog price increase, less people will buy hotdog buns.
Unrelated goods (independent)-
Goods not related to one another.
If they expect price of goods increase in future, they will buy more today (more demand).
Change in Quantity demanded-
Movement along the line (up and down), not shift right or left.
Goods that producers are WILLING and ABLE to purchase.
Law of Supply-
Direct relationship btwn Price and Quantity supplied. .
Find the sum of each individual suppliers at certain price, then add up together to find market supply.
Determinants of supply:
1. Resources prices- high production price, supply decreases.
2. Technology- increase in technology which lowers production cost= supply decreases.
3. Taxes and subsidies- tax increase= supply decrease.
4. Price of other goods- price of other goods increase, supply of original good decreases.
5. Producer expectations- Farmers will hold supply and release in future if price increase. Factory will increase labor supply to meet future increase in price.
6. Number of sellers- more sellers= more supplies.
Competitive market w/ multiple sellers and buyers act independently, none of them can set price.
Price where buyers and sellers match. Equilibrium aka Market Clearing Price.
Quantity demanded = quantity supplied.
Rationing function of prices-
Ability for competition to force supply and demand into an equilibrium.
Mix of goods most valued by society. MB=MC
Set maximum legal price that seller may charge for services by gov't. Causing shortage and Black Market.
Gov't set price ceiling, causing shortage on renting places.
Minimum price fit by gov't. Causing surplus due to the fact that there's more supplies than demands.
Gov't can help by: restrict supply or purchase those surpluses.
Price floor and Price ceiling causes-
Failures to allocate efficiency.
How to calculate Consumer surplus-
Willing to pay - amount actually pay.
Amount that seller is paid for a good - cost of production.
Social surplus (Total Surplus)-
Sum of Consumer surplus and producer surplus.
Loss in total surplus that occurs when economy produces at an insufficient quantity.