ECON Ch04

Market

A group of buyers and sellers of a particular product.

The buyers determine the?

demand for the product.

The sellers determine the?

supply of the product.

In market economies, prices adjust to balance?

supply and demand.

Competitive Market

Has many buyers and sellers, each has a negligible effect on price.

Each seller has limited control over the price because?

many other sellers are offering similar products.

In a perfectly competitive market:

• All goods exactly the same.

• Buyers and sellers so numerous that no one can affect market price; each is a "price taker."

Because buyers and sellers in perfectly competitive markets must accept the price the market determines, they are said to be?

price takers

Monopoly

Markets with one seller, and this seller sets the price.

Quantity Demanded

The amount of a good that buyers are willing and able to purchase at a specified price.

Many things determine the quantity demanded of a good, but one determinant plays a central role….

its price.

Law of Demand

The claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises.

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded.

Because a lower price increases the quantity demanded, the demand curve?

slopes downward.

Market Demand

The sum of all the individual demands for a particular good or service.

The market demand curve is found by?

adding the individual demand curves

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded.

If something happens to alter the quantity demanded at any given price…

the demand curve shifts.

Variables that can shift the demand curve

• Income

• Prices of related goods

• Tastes

• Expectations

• Number of buyers

If the demand for something falls when income falls, that good is called a?

normal good.

If the good for something rises when income falls, that good is called an?

inferior good.

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other.

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other.

Quantity Supplied

The amount of a good that sellers are willing and able to sell at a specified price.

Law of Supply

The claim that, other things being equal, the quantity supplies of a good rises when the price of the good rises.

Supply Schedule

A table that shows the relationship between the price of a good and the quantity supplied.

Because a higher price increases the quantity supplied, the supply curve?

slopes upwards.

Supply Curve

A graph of the relationship between the price of a good and the quantity supplied.

A change that raises the quantity supplied at every price shifts the supply curve to the right and is called an?

increase in supply

A change that reduces the quantity supplied at every price shifts the supply curve to the left and is called a?

decrease in supply

Variables that can shift the supply curve:

• Input prices

• Technology

• Expectations

• Number of sellers

Market Supply

The summation of all individual supply curves to arrive at the entire supply curve for the market.

The market supply curve is obtained by?

the individual supply curves horizontally.

Equilibrium

A situation in which the market price has reached the level at which the quantity supplied equals the quantity demanded.

Equilibrium is where the supply and demand curves?

intersect

Equilibrium Price

The price that equates quantity supplies with quantity demanded.

Equilibrium Quantity

The quantity supplies and quantity demanded at the equilibrium price.

Surplus

When quantity supplied is greater than quantity demanded. (aka excess supply)

Shortage

When quantity demanded is greater than quantity supplied. (aka excess demand)

Regardless of where the price starts, the activities of buyers and sellers push the market price toward?

equilibrium

Law of Supply and Demand

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded of that good into balance.

A shift in the supply curve is called a?

change in supply

a shift in the demand curve is called a

change in demand

A movement along a fixed supply curve is called a

change in the quantity supplied

A movement along a fixed demand curve is called a

change in the quantity demanded