Ch. 4 Econ 2202 - Demand and Supply Concepts

Markets

Structures enabling buyers and sellers to exchange goods and services. 

Competitive Markets

Markets with many buyers and sellers, where no single agent has significant control over price. 

Quantity Demanded

The amount of a good that buyers are willing to purchase at a given price. 

Law of Demand

All else constant, as price decreases, quantity demanded increases, and vice versa. 

Demand Schedule

A table showing the relationship between the price of a good and the quantity demanded.

Demand Curve

A graph of the demand schedule, downward-sloping. 

Normal Good

A good whose demand increases when consumer incomes rise.

Inferior Good

A good whose demand decreases when incomes rise. 

Substitutes

Goods that can replace one another; an increase in the price of one increases the demand for the other. 

Complements

Goods that are consumed together; an increase in the price of one decreases the demand for the other.

Determinants of Demand

Factors that cause shifts in the demand curve including income, preferences, number of buyers, and expectations.

Law of Supply

Higher prices lead to a higher quantity supplied, all else equal. 

Quantity Supplied

The amount of a good that sellers are willing to sell at a given price. 

Supply Schedule

A table showing the relationship between the price of a good and the quantity supplied. 

Supply Curve

A graph illustrating the supply schedule, upward-sloping. 

Determinants of Supply

Factors that cause shifts in the supply curve including production costs, technology, and number of sellers. (supply shifters)

Equilibrium

A state where supply equals demand. 

Equilibrium Price

The price at which quantity supplied equals quantity demanded. 

Equilibrium Quantity

The quantity at which supply equals demand at the equilibrium price. 

Surplus (market surplus)

Occurs when quantity supplied exceeds quantity demanded at a specific price. 

Shortage (market shortage)

Occurs when quantity demanded exceeds quantity supplied at a specific price. 

What is the price or market mechanism? How does a market adjust from a shortage or surplus to return to equilibrium?

The price or market mechanism is how supply and demand determine prices.

• Surplus: Prices fall, leading to more buyers and less production until balance is reached.

• Shortage: Prices rise, causing fewer buyers and more production until the market stabilizes.

What is the role of prices in the market?

Prices signal where resources need to be allocated and help in matching supply with demand. 

Market demand – calculating it or plotting it

Market demand is the total quantity of a good or service that all consumers are willing to buy at different prices.

• Calculating it: Add up the individual demand of all consumers at each price level.

• Plotting it: Create a demand curve by graphing price on the vertical axis and quantity demanded on the horizontal axis. The curve usually slopes downward, showing that demand increases as price decreases.

Market supply – calculating it or plotting it

Market supply is the total quantity of a good or service that all producers are willing to sell at different prices.

• Calculating it: Add up the individual supply of all producers at each price level.

• Plotting it: Create a supply curve by graphing price on the vertical axis and quantity supplied on the horizontal axis. The curve usually slopes upward, showing that supply increases as price rises.

How does equilibrium price and quantity change and how does the market adjust to that equilibrium when the demand and/or supply curves shift?

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You said:

Surplus (market surplus) definition simple

ChatGPT said:

Market surplus, or surplus, happens when the quantity of a good supplied is greater than the quantity demanded at a given price. This leads to excess products in the market, often causing prices to drop.

4o

You said:

What is the price or market mechanism? How does a market adjust from a shortage or surplus to return to equilibrium? simple sentence

ChatGPT said:

The price or market mechanism is the process where supply and demand interact to set prices.

• From a surplus: Prices decrease, encouraging more buyers and reducing supply until equilibrium is reached.

• From a shortage: Prices increase, reducing demand and encouraging more supply until equilibrium is restored.

4o

You said:

can you write it differently

ChatGPT said:

The price or market mechanism is how supply and demand determine prices.

• Surplus: Prices fall, leading to more buyers and less production until balance is reached.

• Shortage: Prices rise, causing fewer buyers and more production until the market stabilizes.

4o

You said:

Market demand – calculating it or plotting it simple definition

ChatGPT said:

Market demand is the total quantity of a good or service that all consumers are willing to buy at different prices.

• Calculating it: Add up the individual demand of all consumers at each price level.

• Plotting it: Create a demand curve by graphing price on the vertical axis and quantity demanded on the horizontal axis. The curve usually slopes downward, showing that demand increases as price decreases.

4o

You said:

Market supply – calculating it or plotting it simple term

ChatGPT said:

Market supply is the total quantity of a good or service that all producers are willing to sell at different prices.

• Calculating it: Add up the individual supply of all producers at each price level.

• Plotting it: Create a supply curve by graphing price on the vertical axis and quantity supplied on the horizontal axis. The curve usually slopes upward, showing that supply increases as price rises.

4o

You said:

How does equilibrium price and quantity change and how does the market adjust to that equilibrium when the demand and/or supply curves shift? in simple terms

ChatGPT said:

When demand or supply shifts, the equilibrium price and quantity change:

• If demand increases: Prices rise, and quantity increases.

• If demand decreases: Prices fall, and quantity decreases.

• If supply increases: Prices drop, and quantity increases.

• If supply decreases: Prices rise, and quantity decreases.

Market adjustment:

• If prices are too high (surplus), sellers lower prices to attract buyers.

• If prices are too low (shortage), sellers raise prices as buyers compete for limited goods.

The market keeps adjusting until supply and demand balance at a new equilibrium.

4o

You said:

how do i write that in simple sentences

ChatGPT said:

When demand or supply changes, the market price and quantity also change.

• More demand makes prices go up and quantity increase.

• Less demand makes prices go down and quantity decrease.

• More supply makes prices go down and quantity increase.

• Less supply makes prices go up and quantity decrease.

How the market adjusts:

• If there is too much of a product (surplus), sellers lower prices to sell more.

• If there is too little of a product (shortage), sellers raise prices because more people want it.

The market keeps changing until supply and demand are balanced again.

Difference between change in demand and change in quantity demanded

o Shift versus moment along the curve

Shift of the entire demand curve versus movement along the existing demand curve. 

Difference between change in supply and change in quantity supply

o Shift versus moment along the curve

Shift of the entire supply curve versus movement along the existing supply curve. 

a. There is a reduction in the supply of tennis balls. What happens to the market for tennis racquets?

b. Researchers find a new low cost method for producing calculators. What happens to the market for calculators?

c. Winter starts, and the weather turns sharply colder. What happens to the market for hot cocoa?