Economics Chapter 4- Macroeconomics

Market

1. A physical place where items are bought and sold.

2. All of the buyers and sellers of a particular good or service.

3. The demand that exists for a particular product/or service

4. The process where a buyer and seller come to agreement with regard to the price and quantity of a product to be sold.

Demand

the quantity of a good or service that buyers will purchase at various times during a given period of time

Law of Demand

The quantity demanded varies inversely with price, as long as other things do not change.

Law of Supply

The quantity supplied will increase if price increases and fall if price falls, as long as other things do not change.

Supply

the quantity that sellers will offer for sale at various prices during a given time period

Substitute Good

something that can be substituted/replaced by another good (ex: me and him)

Complementary Goods

a good which can only be used with the addition of another complementary good (ex: staplers and staples)

Increase of Income

If average incomes were to increase, then overall demand for a particular product would increase.

Increase of Population

If the population (# of consumers) were to increase, then the overall demand for a particular product would also increase

Tastes and Preferences

Changes in either tastes or preferences can lead to either an increase or decrease in demand for certain products.

Expectations

If consumers expect the price of a certain product to rise in the future (ie: housing), then demand for that product will increase as a result of consumers trying to avoid the increase in price.

Price of Substitute Goods

Should the price of the substitute goods either increase or decrease, this will have either a positive or negative effect on the demand for various alternative or complementary products.

Decrease of Cost

If production costs were to decrease, this would cause an increase in supply of the product.

Number of Sellers

If the number of sellers increases, then supply would increase, and vice versa.

Technology

An improvement in technology would decrease the cost of production, allowing manufacturers to supply more of the product.

Nature and the Environment

A drought, or any inclement weather pattern that has a negative effect on a crop can cause supply to drop and prices to rise.

Price of Related Outputs

If the price of a complementary product rises, then a supplier might shift resources into producing that other product, thus increasing the supply of that product while reducing the supply of what the supplier was originally producing.

Surplus

an amount of something left over (supply) when requirements have been met (demand); an excess of production or supply over demand.

Shortage

a state or situation in which something needed cannot be obtained in sufficient amounts. This entails that with the current demand for product X, there is not enough supply to meet demand, thus resulting in a shortage.

Price Equilibrium

The equilibrium price is where the supply of goods matches demand. This means there is no excess supply (Surplus) or insufficient supply (Shortage), rather, everything is being met perfectly.

Understanding a supply and demand graph

On a graph, when there is a higher price, there is a lower demand. Inversely to how if there is a lower price, there is a higher demand. The law of supply and demand combines two fundamental economic principles describing how changes in the price of a resource, commodity, or product affect its supply and demand.
As the price increases, supply rises while demand declines. Conversely, as the price drops supply constricts while demand grows.