Econ 1a Chapter 4
Key terms and concepts
Terms in this set (37)
a group of buyers and sellers of a particular good or service
buyers - determine the demand for a product
sellers - determine the supply of the product
a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
barriers to entry - legal and/or economic
price setters, but look at other sellers' prices
barriers to entry
monopolistic competitive market
differentiated goods - McD's vs. In N Out
price setters - still look at competition's prices
barriers to entry - trademark, copyrights, etc.
perfectly competitive market
many buyers and sellers - nobody holds market power
homogeneous or identical product
no barriers to entry
easiest to analyze
the price for 1 unit of the product/good
quantity demanded (Qd)
the amount of a good that buyers are willing and able to purchase
law of demand
the claim that, other things equal, as price increases, quantity demanded decreases
the demand curve always has a negative (downward) slope
What are the factors that shift demand?
tastes & preferences
number of buyers
prices of other goods
goods for which one's quantity demanded increases as one's income increases
goods for which one's quantity demanded decreases as one's income increases
two goods for which an increase in the price of one leads to an increase in the demand for the other
two goods for which an increase in the price of one leads to a decrease in the demand for the other
What are the factors that shift supply?
number of sellers
a table that shows the relationship between the price of a good and the quantity demanded
the downward sloping line relating price and quantity demanded
the sum of all the individual demands for a particular good/service
needed to analyze how markets work
market demand curve
shows how the total quantity demanded of a good varies as the price of the good varies
while all other factors that affect how much customers want to buy are held constant
need not be stable over time
What does a change in the quantity demanded of a good result in?
a shift in the demand curve
to the right = increase in demand
to the left = decrease in demand
quantity supplied (Qs)
the amount of a good or service that sellers are willing and able to sell
law of supply
other things equal, when the price of a good rises, the quantity supplied of the good also rises -- vice-versa
a table that shows the relationship between the price of a good and the quantity supplied
a graph of the relationship between the price of a good and the quantity supplied
the sum of the supplies of all sellers
increase in supply
any change that raises quantity supplied at every price
shifts supply curve to the right
decrease in supply
any change that reduces the quantity supplied at every price
shifts supply curve to the left
How is the supply of a good related to the prices of the inputs used to make the good?
When does a curve shift?
Only when there is a change in a relevant variable that is not named on either axis.
a situation in which the market price has reached the level at which quantity supplied equals the quantity demanded
the price that balances quantity supplied and quantity demanded
sometimes called the market-clearing price because at this price, everyone in the market has been satisfied
the quantity supplied and the quantity demanded at the equilibrium price
when quantity supplied exceeds quantity demanded
sometimes called excess supply
when quantity demanded exceeds quantity supplied
sometimes called excess demand
law of supply and demand
the price of any good adjusts to bring the quantity supplied and quantity demanded for that good into balance
What are the 3 steps to analyzing changes in equilibrium?
1) decide which curve the event shifts -- supply, demand, or both?
2) decide which direction the curve(s) shift(s) - left or right?
3) use the supply and demand diagram to compare the initial and the new equilibrium - shows how the shift affects the equilibrium price and quantity
What is the role of prices in market economies?
Prices guide the allocation of resources.