H ECON LAP 2: demand and supply

market

buyers and sellers coming to exchange good, services, and/or resources. buyers purchase items at the lowest price possible. sellers sell items at the highest price possible.

record

"price on card" and "negotiated price"

exchange

people giving up something in order to receive something else they would rather have

sellers report

the transaction price

equilibrium price

the price at which the quantity demanded is equivalent to the quantity supplied and the marker is "cleared"

equilibrium quantity

the quantity of a good/service supplied and demanded at the equilibrium price

information/experience

means buyers and sellers have a better sense of what prices would be accepted

cost-benefit

if one risked starting with an extreme price in hopes of gaining a lot from the transaction

maximize gains

competition made everyone less willing to settle for a price that leads to a loss, competition within groups pushes the price towards equilibrium.

buyers behavior towards gains

they are less willing to purchase as the price increases because it lessens their gains. they are more willing to purchase as the price decreases because it increases their gains.

sellers behavior towards gains

they are more willing to purchase as the price increases because their gains increase. they are less willing to purchase as the price decreases because their gains lessen.

competitive market

a market that has many buyers and many sellers, so no single buyer or seller can influence the price.

money price

the amount that one pays for an object/service with paper

relative price

the ratio of one price to another

revenue

money received; income

profit

the amount of revenue that remains after a business pays the cost of producing a good/service

cost of production - firms

costs a firm incurs from manufacturing a product or providing a service

sales

decrease in price. price decreases - quantity demanded increases. firms are well aware of this relationship.

quantity demanded

the amount that consumers plan to buy during a given time period at a particular price

law of demand

price decreases - quantity demanded increases. price increases - quantity demanded decreases.

demand

the entire relationship between the price of a good and the quantity demanded of that good

demand curve

the graphic representation of the quantity of a good or service that buyers are willing and able to buy at all possible prices during a certain time period

change in demand

illustrates an increase/decrease in demand

demand curve shift left

the quantity demanded at every price is less

demand curve shift right

the quantity demanded at every price is increased

what does I.N.S.E.C.T stand for

income, number of buyers, substitutes, expectations, complement, taste

income

normal good (actually good): income growth - demand growth

inferior good (dupe): income growth - demand decline

substitute

2 products for which price increases for one - demand growth for the other

number of buyers

population growth - demand increase

population decline - demand decrease

expectations for future prices

future price to increase - demand increases

future price to decrease - demand decreases

expectations for future income

future income to increase - demand increase

future income to decrease - demand decrease

complements

two products for which price increases for one - demand decrease for the other and vice versa

taste

preference for a good increases - demand for the good increase

quantity supplied

the amount of a good or service that producers plan to sell during a given time period at a particular price.

law of supply

as price increases - quantity supplied increases. as prices decreases - quantity supplied decreases.

supply

supply curve

the graphic representation of the quantity of a good or service that producers are willing and able to sell at all possible prices during a certain time period

change in supply

illustrates increase/decrease in supply

supply curve shift left

the quantity supplied decreases at every price.

supply curve shift right

the quantity supplied increases at every price.

shift in supply are

cost of production, price expectations, number of supplier

cost of production

production cost decreases - supply increases. for example could happen because lower input prices, new technology, improved productivity, decreases taxes, new or increased subsides.

production cost increases - supply decreases. for example could happen because higher input prices, diminished technology, decreased productivity, new or increases taxes, decreases subsides.

subsides

a payment made by the government to support a business or industry. no good or service is provided in return for the payment.

price expectations

producers expect the price of their product to INCREASE in the near future - supply DECREASES today. producers expect the price of their product to DECREASES in the near future - supply INCREASES today.

number of producers

INCREASE of number of producers - INCREASE in supply. DECREASE of number of producers - DECREASES in supply.

shortage

as price increase quantity demanded decreases and quantity supplied increases.

excess demand puts upward pressure on price

surplus

as price decreases the quantity demand increases and decreases the quantity supply

excess supply puts downward pressure on price

double shift (same direction)

when supply and demand change in same direction, the equilibrium quantity changes in the same direction but to predict the price rises/fall you would need the magnitude of the change so say UNKNOWN.

double shift (opposite direction)

when supply and demand change in opposite directions, the price changes but to know the change in the equilibrium quantity is UNKNOWN due to not knowing the magnitude.

elasticity coefficient

percentage change in quantity sold / percent change in price

inelastic

if quantity demanded is less than the price percent change

elastic

if quantity demanded is more than the price change

unit elastic

if quantity demand and the price percent change is the same