Chapter 3: Market Demand and Supply

Flashcards on Market Demand and Supply

What is the law of supply?

A direct relationship between the price of a good and the number of units sellers are willing to offer for sale in a defined time period, ceteris paribus.

What does the supply schedule (table) show?

Shows the quantity of a good or service that firms are willing and able to offer for sale at different prices.

Why do sellers offer more units for sale at a higher price?

At a higher price, sellers will offer more units for sale because it is more profitable.

What causes changes in quantity supplied?

Caused by changes in price only and is represented as a movement along a supply curve.

What happens to the supply curve when the price changes?

Movement along the supply curve.

What are the non-price determinants of supply?

Number of sellers in the market, available technology, input prices, taxes and subsidies, expectations of producers, prices of other goods the firm could produce.

What happens to the supply curve when there is a change in non-price factors?

The supply curve shifts.

What does a rightward shift in the supply curve indicate?

Indicates supply increasing.

What is a market?

Where interaction amongst buyers and sellers determines the price and quantity of goods and services exchanged.

What creates market equilibrium?

The forces of supply and demand create market equilibrium.

What market condition defines an equilibrium?

Quantity demanded and the quantity supplied are equal.

What is equilibrium?

The point of balance between demand and supply in the market.

What is a surplus?

Quantity supplied exceeds quantity demanded.

What happens to the price when there is a surplus?

Prices fall, to increase sales, thereby moving toward equilibrium.

What is a shortage?

Quantity demanded exceeds the quantity supplied.

What happens to the price when there is a shortage?

Prices rise (due to too many buyers chasing too few goods,) thereby moving toward equilibrium.

What is the result at equilibrium?

At equilibrium there is an efficient outcome.

What is efficient outcome also referred to as?

Market clearing.