Microeconomics Chapter 3

Perfectly Competitive Market

All Goods exactly the same

Buyers & sellers ao numerous that no one can affect market price— each is a “Price Taker”

Agents have NO Market Power

Quantity Demanded

The amount of good that buyers are willing and able to purchase

Law of Demand

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

Demand Schedule

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

Demand for a Normal Good

Is positively related to income

Increase in income cause increase in quantity demanded at each price , Shift D curves to the right

Demand for a inferior good

Is negatively related income

An increase in income shifts D curve for inferior goods to the left

Substitutes

Two goods are substitues if an increase in the price of one causes an increase in demand for the other.

Complements

Two goods are Complements if an increase in the price of one causes a fall in demand for the other

Quantity Supplied

The Quantity Supplied of any good is the amount that sellers are willing and able to sell

Law of Supply

the claim that quantity supplied of a good rises when the price of the good rises, other things equal

Supply Schedule

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

Equilibrium Price

that price that equates quantity supplied and quantity demanded

Equilibrium Quantity

The Quantity Supplied and Quantity Demanded at the equilibrium price

Surplus (a.k.a. excess supply)

When Quantity Supplied is greater than Quantity Demanded.

Shortage (a.k.a. excess demand)

When Quantity Demanded is greater than Quantity Supplied

Change in Supply

A shift in the S curve occurs when a non-price determinant of supply changes (like technology or costs)

Change in Quantity Supplied

a movement along a fixed S (supply) curve occurs when P (price) changes

Change in Demand

a shift in the D (demand) curve occurs when a non-price determinant of demand changes (like income or # of buyers)

Change in Quantity Demanded

a movement along a fixed D curve occurs when P changes

Price Ceiling

a legal maximum on the price of a good or service

Example: Rent Control

Price Floor

a legal minimum on the price of a good or service