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Econ - Chapter 4
Terms in this set (44)
group or economic agents who are trading a good or service, and the rules and arrangements for trading
is the price at which buyers and sellers conduct their transaction
Perfectly competitive market
1. sellers all sell an identical good or service
2. no individual buyer or seller is big enough to influence the market price of a good or service
buyers and seller who accept the market price; buyers cant bargain for lower and sellers cant bargain for higher
the amount of good that buyers are willing to purchase at a give price
chart that reports the quantity demanded at different prices
plots the quantity demanded at different prices; has downward slope
Law of Demand
quantity demand increase when the price falls
Willingness to Pay
highest price that a buyer is willing to pay for extra unit of good
Diminishing Marginal Benefit
as you consume more of one good, your willingness to pay for an additional unit declines
sum of individual demand curves for all potential buyers; plots relationship between quantity demanded and the market price
Work force of economics
demand + supply
As the price goes down...
we start to pay for things that are less necessary
Changes in price result in...
move ALONG the demand curve
When something other than price changes...
the curve shifts
Shifts on the demand curve
1. tastes and preferences
2. income or wealth
3. changes in availability and prices of related goods
4. number and scale of buyers
5. buyers beliefs about future prices
Tastes and Preferences
- subject and will vary among customers
- seasonal changes or fads have predictable effects on demand
Income and Wealth
- changes in ability to pay for goods and services
- depends on the type of good (normal or inferior)
demand increases as income increases
demand increases as income decreases
ex) ramen noodles
Changes in Avilabilty and Prices of Related Goods
the availability and price of a substitutes and compliments compared to the original good
decrease in the price of one leads to a decrease in demand for another
decrease in price for one leads to an increase in demand for another
Number and scale of buyers
Increase the number of potential buyers leads to an increase in demand
Buyers Belief about Future about Future Prices
expectation of higher or lower prices for a good in the future increases or decreases current demand for a good; will adjust spending in anticipation of the direction of future prices in order to obtain lowest price
Law of Supply
direct relationship between price and quantity supplied; when prices rises the quantity supplied rises; always upward sloping
Why is supply curve upward sloping?
cost of producing good is not equal across all supplies
low price - good is produced and sold by low cost producers
high price - good is produced and sold by high cost suppliers
Changes in price results in....
movement along supply curve
Increase or decrease in supply...
shift in supply curve up or down
Shifts in supply curve
1. Input prices
3. Number and Scale of sellers
4. Seller's expectations about future prices
decrease in the price of an input increases profits and encourages more supply
technological innovation makes sellers willing to offer more at a given price or sell at a lower price
lowers cost, increase supply
Number and Scale of Sellers
as producers enter and exit the market, the overall supply changes
enter = more sellers, increase supply
exit = less seller, decrease supply
Seller's Expectation About Future Prices
expectation of higher price for a good in the future decreases current supply of a good, if they can store the good; sellers will adjust their current offerings in anticipation of the direction of future prices in order to obtain highest possible price
- market is in agreement about price to exhcange product
- when Qs = Qd
- no surplus or shortages
Free markets are always moving toward...
the equilibrium price
more units being supplied than are demanded
How to fix surplus?
- lower price until supply equals demand
- Qd will rise and Qs will fall till Qd=Qs
more units demanded than being supplied
How to fix shortage?
- raise price until supply equals demand again
- Qd will fall and Qs will rise till QD=Qs
when consumers want more than suppliers provide at a given price; result in shortage
When suppliers provide more than consumers want at a given price; results in a surplus
When demand increases...
equilibrium increases and the equilibrium quantity increases
When supply increases...
equilibrium will change to lower price and higher quantity
This set is often in folders with...
Econ - Chapter 1
Econ - Chapter 2
Econ - Chapter 5
Econ - Chapter 6
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