CH 4 - Market Forces of Supply and Demand

what are the impacts of supply and demand?

- determine quantities of goods produced

- prices they are sold at

describe various events or policies that an economy may be affected by. how would supply and demand be affected? (list 3)

what behaviour do the terms Supply and Demand refer to?

that of people interacting with one another in competitive markets

define Market

group of buyers and sellers of particular goods and services

what do buyers determine? what do sellers determine?

buyers determine product demand

sellers determine product supply

define competitive market. what are price and quantity determined by?

markets with many buyers and sellers - each has impact on market price

price and quantity determined by buyers/sellers marketplace interactions

define a perfectly competitive market

goods offered for sale are all the same

no single buyer has influence over market price

define a monopolistic market

one seller in the market, seller sets the price

what happens at market price?

buyers buy all they want, sellers sell all they want

the market for which product best fits the definition of a perfectly competitive market?

a) eggs

b) tap water

c) movies

d) computer operating systems

a) eggs - standardized product, many buyers/sellers

define the quantity demanded

amount of a good buyers are willing and ABLE to purchase

define the Law of Demand

all else equal, quantity demanded falls when price rises

define demand schedule

table showing relationship between goods' prices and quantity demanded

define market demand. how would you find the market demand of 2 individuals?

sum of all the individual demands for certain goods/services

- (market demand = individual #1's demand + indiv. #2's demand)

- ex/ quantity #1 = 4, quantity #2 = 8. market demand = 12

draw up an example of a market demand as the sum of individual demands (draw individual demand graphs, then market demand altogether)

[slide 15]

(shifts in demand curve) what are the 2 goods that can be classified when consumers' income levels shift?

- normal good: good where increase in income leads to increase in demand

- inferior good: good where increase in income leads to decrease in demand

(shifts in demand curve) what are 2 categories for related goods when prices change?

- substitutes: 2 goods; increase in one's price leads to increase in demand for the other

- complements: 2 goods; increase in one's price leads to decrease in demand for the other

when does the demand curve shift VS have a movement along the curve?

movement - change in quantity due to PRICE VARIATION

shift - change in demand caused by non-price factors (besides prices of related goods)

a change in which of the following will NOT shift the demand curve for hamburgers?

a) price of hot dogs

b) price of hamburgers

c) price of hamburger buns

d) income of hamburger consumers

b) price of hamburgers

(application) draw a demand curve for music downloads - what happens in each of the following scenarios?

a) price of iphones falls

b) price of music downloads falls

c) price of cds falls

[slide 25-27]

define quantity supplied

amount of a good sellers are WILLING AND ABLE to sell

define Law of Supply

all else equal, quantity supplied of a good rises when price rises

define supply schedule

table showing relationship between a good's price and quantity supplied

(shifts in supply curve) define increase and decreases in supply. how do they affect the curve?

increase - change increasing quantity supplied at every price. shifts supply curve right

decrease - changes decreasing quantity supplied at every price. shifts supply curve left

name 4 examples of factors that shift the supply curve

- input prices

- technology

- expectations

- number of sellers

what results in a shift in the supply curve vs a movement along the curve?

curve shift - changes caused by non-price factors (besides prices of related goods)

movement - change related to price variation (price of the good itself)

Which of the following moves the pizza market up along a given supply curve?

a. an increase in the price of pizza

b. an increase in the price of root beer, a complement to pizza

c. a decrease in the price of cheese, an input to pizza

d. a kitchen fire that destroys a popular pizza joint

a - increase in pizza price

Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?

a. The supply curve shifts to the left.

b. The supply curve shifts to the right.

c. The demand curve shifts to the left.

d. The demand curve shifts to the right.

d - demand curve shifts right

define equilibrium

price reaches levels where quantity supplied = quantity demanded

define equilibrium price

price balancing quantity supplied and quantity demanded

define equilibrium quantity

quantity supplied and quantity demanded at equilibrium price

define surplus and shortage

surplus = quantity supplied > quantity demanded

shortage = quantity supplied < quantity demanded

(application) draw 2 graphs that are not in equilibrium, one displaying excess supply and one displaying excess demand

identify the surplus and shortage in each graph

[slide 43]

what is the Law of Supply and Demand?

prices of any good adjust to bring quantity supplied and demanded into balance

(application) draw the initial and new equilibrium for the supply/demand graph of the following scenario:

hot weather's impact on ice cream markets

[slide 47]

- demand is increased; curve shifts right

- price increases, quantity sold increases

(application) draw the initial and new equilibrium for the supply/demand graph of the following scenario:

sugar price increases on the ice cream market

[slide 48]

- reduces supply of ice cream

- higher prices, lower quantity sold

(application) draw the initial and new equilibrium for the supply/demand graph of the following scenarios:

ice cream cone market:

a) price rises, quantity rises

b) price rises, quantity falls

c) price rises, quantity remains the same

[slide 49]

(application) draw a table with arrows indicating what happens to price and quantity in the combos of:

y-axis:

- no change in demnad

- increase in demand

- decrease in demand

x-axis:

- no change in supply

- increase in supply

- decrease in supply

[slide 50]

The discovery of a large new reserve of crude oil will shift the _________ curve for gasoline, leading to a ________ equilibrium price.

a. supply; higher

b. supply; lower

c. demand; higher

d. demand; lower

b - supply;lower

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

a. Prices and quantities both rise.

b. Prices and quantities both fall.

c. Prices rise and quantities fall.

d. Prices fall and quantities rise.

a - prices, quantities rise

what is the relationship between price and scarce resources?

prices determine the rationing of scarce resources

- prices determine who can purchase the limited resources

- prices determine producers of products and their supply

what's the difference between "increase in demand" and "increase in quantity demanded"?

increase in quantity demanded occurs when good prices decrease; movement along the curve

increase in demand occurs when the demand curve itself shifts; caused by something other than good price