Mircoeconomics Chapter 3

Market

Any place people come together to trade, physical or virtual

First side of the market

buying side, demand

Second side of the market

selling side, supply

Demand def

the willingness and ability of buyers to purchase goods at different prices during different periods

There is no demand when

The buyer doesn't have the ability to purchase

Law of Demand

As price goes up, quantity demanded goes down. As the price falls the quantity demanded goes up

Don't make what mistake

As price goes up quantity demanded goes down, not demand goes down

Quantity demanded def

the number of units that individuals are willing and able to buy at a particular price during a time period

What is the only thing that will cause a shift in quantity demanded

price

What causes a shift in demand

income, preferences, prices of related goods, number of buyers, expectations of future price

What causes a change in quantity demanded

a goods own price

Demand schedule

A numerical representation of the demand schedule

Individual demand curve

price-quantity combination of a particular single buyer

Market demand curve

price-quantity combination of a good for all buyers

What are related goods

Subsitute goods and complimentary goods

Subsitute good ex

Coke and Pepsi

Complimentary good ex

Tennis balls and tennis rackets

Normal good

A good where demand rises as income rises, price stays the same

Inferior good

A good where demand rises as income decreases, price stays the same

Neutral good

A good for which demand does not change as income rises or falls

Normal good ex

Starbucks coffee

inferior good ex

Ramen noodles

Neutral good ex

Gas

Ex of change in preferance

Twilight movies and books to zombie movies and books

How does the number of buyers effect demand

The more buyers = higher demand, fewer buyers = lower demand

Buyers may increase because of what

Immigration

Buyers may decrease because of what

increased death rate, war, migration

How does expectations of future price effect demand

If you know that the price will be raised in the future, the demand will increase because you will stockpile

Draw a graph of a change in quantity demanded

Draw a graph of a change in demand

Supply

The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period

Capitalism

an economic system based on private ownership of capital

What does capitalism have

very little government intervention

Socialism

the means of production, distribution, and exchange should be owned or regulated by the community as a whole

Law of supply

As the price of a good rises, the quantity supplied of the good rises, as the price decreases the quantity supplied decreases

Fixed supply looks like what

Vertical line

Why supply curves are upward sloping

Higher price means higher profits, so they produce more if the price is going up

Supply schedule

The numerical tabulation of the quantity supplied of a good at different prices, represents law of supply

Reasons for shift in supply curve

prices of relevant resources, technology, prices of other goods, number of sellers, expectation of future prices, taxes and subsidies, government restrictions

Prices of relevant resources

If the price of wood goes down then the cost of making doors will go down

Consequences of prices of relevant resources

low cost of production means more profit for suppliers and more supply

Technology

Can lower the cost of producing a good, which means more profit for supplies, resulting in more supply

Prices of other goods

If a wheat farmer sees that there is more profit in planting corn, he will start planting corn thus more supply

Number of sellers

A decrease in the number of sellers will mean there is less supply of a certain good

Expectation of future prices

If firewood producers know that winter is next month and prices will be higher, they will hold off on producing firewood until they can sell it for more

Taxes and subsidies

Subsidies are money given to suppliers from the government, like money to corn farmers

Government restrictions

If California restricts the sale of guns, then the supply will decrease

A change in quantity supplied referes to what

a movement along a supply curve

Whats the only factor that can directly cause a change in the quantity supplied of a good

change in the price of a good or own price

What happens to the supply curve if the number of sellers decreases,

The supply curve shifts to the left

What happens to the supply curve if a tax is placed per unit of good

The supply curve shifts to the left

What happens to the supply curve if the price of a relevent resource falls

The supply curve shifts to the right

If the price of apples rises the supply of apples will rise

false, the quantity of apples supplied will rise

Equilibrium

The intersection of supply and demand

Simplest def of equilibirum

S = D, Qs = Qd

Surplus

Qs > Qd

Shortage

Qd > Qs

IPPNE

Income, preferences, price of related goods, number of buyers, expectations of future price

PTPNETG

Prices of relevant resources, technology, prices of other goods, number of sellers, taxes and subsidies, government restrictions

if you are not in equilibirum you are in

disequilibrium

disequilibrium price

a price other than equilibrium price

How does a surplus move the market to equilibirum

suppliers lower their price until equilibrium price

How does a shortage move the market to equilibirum

suppliers raise their price until equilibrium price

Real life examples of market moving to equilibirum

Stock market, if there is a shortage in stock prices will rise. Real estate, if a house isn't selling (surplus) the seller will lower their price

To the left of the equilibrium point there is always what

exchange

To the right of the equilibirum point there is always what

no exchange

Consumer surplus

Cs = maximum buying price - price paid

Consumer surplus example

You will max pay $10 at the movie theatre, but you only spend $7. Surplus is $3

producer surplus example

Theatre owner will sell tickets for at least $5. He sells them for $7. Surplus is $2

Producer surplus

Ps = price recieved - minimum selling price

Total surplus

Ts = Cs + Ps

If a market is in equilibirum, what will cause it to go into disequilibirum

Shift or change in demand or supply

Demand equation ex

Qd = 1500 - 32P

Supply equation ex

Qs = 1200 + 43P

How to find equilibrium pice with equations

set equations equal to eachother, solve for P

How to get Qd and Qs from equilibirum price answer

plug P into the equations