MODULE 2: MARKET FORCES OF DEMAND AND SUPPLY

MARKET

a group of buyers and sellers of a particular good or service

COMPETITIVE MARKET

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

PERFECTLY COMPETITIVE MARKET

all goods offered for sale are exactly the same; Many buyers and sellers; no single buyer or seller has any influence over the market price

LAW OF DEMAND

the claim that the quantity demanded of a good falls when the price of the good rises, other things equal

QUANTITY DEMANDED

refers to the specific amount of a good that consumers are willing and able to purchase at a given price

DEMAND SCHEDULE

a table that shows the relationship between the price of a good and the quantity demanded

DEMAND CURVE

a graph of the relationship between the price of a good and the quantity demanded

MARKET DEMAND

is the sum of all of the individual demands for a particular good or service.

DEMAND CURVE SHIFTERS (5)

factors that cause the demand curve to shift left or right, indicating changes in consumer demand.

INCOME

PRICES OF RELATED GOODS

TASTE

NUMBER OF BUYERS

EXPECTATIONS

NORMAL GOOD

an increase in income leads to an increase in demand

D shifts to the RIGHT

INFERIOR GOOD

an increase in income leads to a decrease in demand

D shifts to the LEFT

SUBSTITUTES

goods that can replace each other; when the price of one rises, the demand for the other increases.

COMPLEMENTS

goods that are consumed together; when the price of one increases, the demand for the other decreases.

TASTE

The most obvious determinant of your demand.

D shifts depending on consumer preferences and trends.

EXPECTATIONS

Your expectations about the future may affect your demand for a good or service today; if consumers expect prices to rise, they may buy more now.

LAW OF SUPPLY

the claim that the quantity supplied of a good rises when the price of the good rises, other things equal. This principle reflects the direct relationship between price and quantity supplied in a market.

SUPPLY

comes from the behavior of the sellers

DEMAND

comes from the behavior of the buyers

QUANTITY SUPPLIED

the amount that sellers are willing and able to sell.

SUPPLY SCHEDULE

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

SUPPLY CURVE

a graph of the relationship between the price of a good and the quantity supplied

SUPPLY CURVEE SHIFTERS (4)

factors that cause the supply curve to shift left or right, indicating changes in quantity supplied

INPUT PRICES

TECHNOLOGY

NUMBER OF SELLERS

EXPECTATIONS

EQUILIBRIUM

P has reached the level where quantity supplied equals quantity demand

TRUE/FALSE

In market economies, prices are the signals that guide economic decisions and allocate scarce resources