Microeconomics - Chapter 4 Supply & Demand

Pricnciples of Microeconomics Chapter 4 The Market Forces of Supply and Demand
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Terms in this set (...)

Supply and Demand
two words that economists use most often
Supply and Demand
forces that make market economies work
Supply and Demand
determine the quantity of each god produced and teh price at which it is sold
Supply and Demand
if you want to know how an event or policy will effect the economy, you must think first about how it will affect ___________________
Variables that can shift the demand curve
1. income
2. prices of related goods
3. tastes
4. expectation
5. number of buyers
factors influencing the quantity demanded
Demand is likely to change if:
1. incomes change
2. consumer preferences change
3. the prices of related goods change
4. the number of consumers change
5. consumer expectations about future prices and incomes change
5 factors that are the major determinants of demand.
1. incomes change
2. consumer preferences change
3. the prices of related goods change
4. the number of consumers change
5. consumer expectations about future prices and incomes change
price
only variable that represents a movement along the demand curve rather than a shift
demand
the relationship between the price per unit of something - a good or service - and the amount of that good or service that buyers are willing and able to purchase
demand
is defined as a schedule or curve showing the amount of a good or service consumers are able and willing to purchase at a set of possible prices during a specified period of time
law of demand
there is a negative relationship between the price and quantity demanded
Law of Demand
there is an inverse or negative relationship between price and quantity demanded, all else equal
when price falls and, therefore, consumers purchase more of a good
we do not say that demand has increased, but rather that the quantity demanded has increased
Procedure to follow when you need to be able to use the supply and demand model to predict how market price and market quantity change when you are given a specific change in economic circumstances.
1. Draw your own demand and supply diagram.

2. Determine if the change presented will cause the demand curve or the supply curve to shift.

3. Using your diagram, draw the new demand or supply and calculate the new market price and quantity.
Supply
is a schedule that shows the amount of a good or service firms are able and willing to supply at various prices
Important variables that shift the supply curve
1. input prices
2. technology
3. number of sellers
4. summary
supply
the relationship between the price of a good and the amount that business firms are willing and able to offer for sale
supply relationship
only applies in a competitive market
law of supply
positive relationship between price and quantity supplied
change in supply
a shift of the entire supply curve
Five determinants of supply
1. factor or input prices
2. technology
3. prices of other related goods
4. the number of sellers in the market
5. future price expectations
3 Step Program for annalyzing changes in Equilibrium
1. Decide whether the event shifts the supply or demand curve (or perhaps both).\

2. Decide in which direction the curve shifts.

3. Use the siupply-and-demand diagram to see how the shift changes the equilibrium price and quantity.
Change in Supply
Shift in the supply curve
Change in Demand
Shift in the demand curve
Change in the quantity supplied
A movement along a fixed supply curve
Change in the quantity demanded
A movement along a fixed demand curve
A shift in one curve (supply or demand)
automatically results in a movement along the other curve (supply or demand)
When supply remains the same and demand increases
both the equilibrium price and equilibrium quantity will rise
When demand increases and supply increases
it will always result in an increase in the equilibrium quantity, but the new equilibrium price may be more than, less than, or the same as, the old equilibrium price
When demand remains the same and supply decreases
the new equilibrium price is higher and the new equilibrium quantity is lower