Chapter 4 - The Market Forces of Supply

These flashcards cover key concepts from Chapter 4 about market forces, supply, demand, and their interactions.

What is a market?

A group of buyers and sellers of a particular good/service.

What defines a perfectly competitive market?

A market with many buyers and sellers where identical products are sold, and no single buyer or seller can influence the market price.

What is the Law of Demand?

As price falls, the quantity demanded rises; as price rises, the quantity demanded falls.

What is a demand schedule?

A table showing quantity demanded at various prices.

What causes a movement along the demand curve?

A change in the good's price.

What is market demand?

The sum of all individual demands at each price.

What are non-price determinants of demand?

Factors that can shift the demand curve, such as income, prices of related goods, tastes/preferences, expectations, and number of buyers.

What is the relationship described by the Law of Supply?

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

What is a supply schedule?

A table showing quantity supplied at different prices.

What can cause a shift in the supply curve?

Changes in non-price determinants like input prices, technology, expectations, number of sellers, and government policies.

What is market equilibrium?

The price where quantity demanded equals quantity supplied.

What happens when price is greater than equilibrium price?

Surplus occurs, leading firms to lower prices to sell inventory.

What occurs during a shortage?

Quantity demanded is greater than quantity supplied, leading buyers to compete and drive prices up.

What is the role of prices in the market?

Prices serve as signals to consumers and incentives to producers, allocating resources efficiently.

What is the difference between a change in demand and a change in quantity demanded?

A change in demand shifts the whole curve due to non-price factors; a change in quantity demanded is movement along the curve due to price changes.

Define surplus.

Quantity supplied is greater than quantity demanded, leading to excess goods.

Define shortage.

Quantity demanded is greater than quantity supplied, leading to competition among buyers.