Microeconomics Chapter 4

Market

A group of economic agents who are trading a good or service plus the rules and arrangements for trading. May have a physical location or not.

Market price

The price at which buyers and sellers conduct transactions

Competitive equilibrium price

Equates the quantity demanded the quantity supplied.

Perfectly competitive market

This is a market where every buyer pays and every seller charges the same market price

Quantity Demanded

The amount of a good that buyers are willing to purchase at a given price

Demand Schedule

A table that reports the quantity demanded at different prices, holding all else equal

Demand Curve

Plots the quantity demanded at different prices

Market Demand Curve

The sum of the individual demand curves of all the potential buyers. The market demand curve plots the relationship between the total quantity demanded and the market price, holding all else equal

Law of Demand

In almost all cases, the quantity demanded rises when the price falls (holding all else equal)

A change in interests or preferences

A change in what we personally like, enjoy, or value

A change in income and wealth

A change in income affects your ability to pay for goods and services

Inferior goods

Goods that you buy when times are tough and your income is not as high.

Changes in Availability and Prices of Related Goods

A change in the availability and prices of related goods will shift the demand curve.

Complements

Goods that we tend to associate together, an example could be peanut butter and jelly

Substitutes

Goods that are used in place of another, for example coke and diet coke

Changes in the Number and Scale of Buyers

When the number of buyers increases, the demand curve shifts right. When the number of buyers decreases, the demand curve shifts left.

Changes in Buyer’s Beliefs about the Future

Consumers’ beliefs about the future influence demand.

Quantity Supplied

The amount of a good that sellers are willing to sell at a given price

Market Supply Curve

Plots the relationship between the total quantity supplied and the market price, holding all else equal

Shifts of the Supply Curve

this occurs when one of the following changes

1. input prices

2. technology

3. number and scale of sellers

4. sellers’ expectations about the future

Input

A good or service used to produce another good or service

Competitive Equilibrium

The point at which the market comes to an agreement about what the price will be (competitive equilibrium price) and how much will be exchanged (competitive equilibrium quantity) at the price.

Excess Demand

Occurs when consumers want more than suppliers provide at a given price

Curve Shifting

Both supply and demand curve shift to the left/right depending changes in the market