Chapter 4: The Market Forces of Supply and Demand
Terms in this set (49)
What are the forces that make market economies work?
Supply and Demand
What does supply and demand determine?
The quantity of each good produced and the price at which it is sold
Supply and demand
The behavior of people as they interact with one another in competitive markets
A group of buyers and sellers of a particular good or service
What do buyers as a group determine?
The demand for the product
What do sellers as a group determine?
The supply of the product
Highly organized markets
Buyers and sellers meet at a specific time and place where and auctioneer helps set prices and arrange sales (markets for agricultural commodities)
Less organized market
Market for ice cream in a particular town
What determines price and quantity supplied?
All buyers and sellers as they interact in the marketplace
A market in which there are so many buyers and so many sellers that each has a negligible impact on the market price.
What are the two factors for a perfectly competitive marketplace?
1. The goods offered for sale are all exactly the same
2. The buyers and sellers are so numerous that no single buyer or seller has any influence over the market place
buyers and sellers in perfectly competitive markets must accept the price the market determines
At the market price what can buyers and sellers do?
buyers can buy all they want, and sellers can sell all they want
When a market only has one seller, and this seller sets the price
The line relating price and quantity demanded
the amount of the good that buyers are willing and able to purchase
Law of demand
Other things being equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises
The table that shows the relationship between the price of a good and the quantity demanded, holding constant everything else that influences how much of the good consumers want to buy
Why does the demand curve slope down?
other things being equal, a lower price means a greater quantity demanded
the sum of all individual demands for a particular good or service
How do you find the total quantity demanded at any price?
We add the individual quantities, which are found on the horizontal axis of the individual demand curves
What does the market demand curve show?
shows how the total quantity demanded of a good varies as the price of the good varies, while all the other factors that affect how much consumers want to buy are held constant
Increase in demand
any change that increases the quantity demanded at every price shifts the demand curve to the right
decrease in demand
any change that reduces the quantity demanded at every price shifts the demand curve to the left
if the demand for a good falls when income falls
if the demand for a good rises when income falls
when a fall in the price of one good reduces the demand for another good
when a fall in the price of one good raises the demand for another good
The supply curve
the relationship between price and quantity supplied
the amount that sellers are willing and able to sell
law of supply
other things being equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well
a table that shows the relationship between the price of a good and the quantity supplied holding constant everything else that influences how much producers of the good want to sell
the curve relating price and quantity supplied
the sum of the demands of all buyers
the sum of the supplies of all sellers
what does the market supply curve show?
how the total quantity supplied varies as the price of the good varied, holding constant all the other factors beyond price that influence producers decisions about how much to sell
increase in supply
any change that raises quantity supplied at every price, such as a fall in the price of sugar, shifts the supply curve to the right
decrease in supply
any change that reduces the quantity supplied at every price
The supply of a good is ____ related to the price of the inputs used to make the good
When does a supply curve shift?
Only when there is a change in a relevant variable that is not named on either axis
What does movement along the supply curve represent?
A change in price
one point at which the supply and demand curves intersect
the price at this intersection
What is the equilibrium price sometimes called?
the market clearing price
a situation in which quantity supplied is greater than quantity demanded
a situation in which quantity demanded is greater than quantity supplied
the position of the supply curve
the amount suppliers wish to sell
What is a movement alone a fixed supply curve called?
a change in the the quantity supplied
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