Terms in this set (43)
Perfectly competitive market
A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market
A table that shows the relationship between the price of a product and the quantity of the product demanded
The amount of a good or service that a consumer is willing and able to purchase at a given price
a curve that shows the relationship between the price of a product and the quantity of the product demanded
Horizontal sum of all individual quantities demanded by each buyer in the market at each price
Law of Demand
The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease
The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods that are substitutes
The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power
Ceteris paribus (all else equal) condition
The requirement that when analyzing the relationship between two variables-such as price and quantity demanded-other variables must be held constant
A good for which the demand increases as income rises and decreases as income falls
A good for which the demand increases as income falls and decreases as income rises
Goods and services that can be used for the same purpose
Goods and services that are used together
The characteristics of a population with respect to age, race, and gender
The amount of a good or service that a firm is willing and able to supply at a given price
A table that shows the relationship between the price of a product and the quantity of the product supplied
A curve that shows the relationship between the price of a product and the quantity of the product supplied
Law of supply
The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied
A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
A situation in which quantity demanded equals quantity supplied
Competitive market equilibrium
A market equilibrium with many buyers and sellers
A situation in which the quantity supplied is greater than the quantity demanded
Occurs at any price above equilibrium
Price will fall over time toward equilibrium
A situation in which the quantity demanded is greater than the quantity supplied
Occurs at any price below equilibrium
Price will rise over time towards equilibrium
What are the Demand Shifters
Changes in Income
Price of Related goods
Changes in taste and preferance
Number of buyers
What are the supply shifters
The cost of inputs
Changes in technology
Taxes and subsidies
Number of Sellers
Graphically, the intersection of supply and demand
Supply Goods and service
Want to purchase goods supplied by firms
Sellers and buyers come together to form this (Doesn't have to be a physical place)
Resources are allocated among households and firms with little or no government Interference (Prices are determined by the forces of supply and demand)
Many buyers and sellers, No one individual has any influence over the price, the price is determined by the entire market (One farmer does not determine the price of corn)
Buyer or seller has an influence on the price
Exists when a single company supplies the entire market for a good or service (Mono is One)
Shift in demand
Caused by changes in non-price factors
Entire demand curve will shift to the left or right
Movement along a demand curve
Caused by a change in the price of the good
Inverse relationship between price and quantity demanded
Multiple market effects
One economic event can affect multiple markets
How is the price of a good determined?
The market forces of supply and demand work simultaneously to determine the price
The law of supply and demand
The price of any good will adjust to bring the quantity supplied and quantity demanded into balance
The price that causes quantity supplied to equal quantity demanded
The numerical quantity (Supplied and demanded) at the equilibrium price
If you take away just one thing from this course, it will probably be "supply and demand."
In competitive markets, supply and demand allow prices to adjust toward equilibrium.
In equilibrium, the markets clear. This means there are no surpluses or shortages.
Supply and demand play a key role in determining prices in the market economy. Prices established through this process help allocate resources.
A market consists of a group of buyers and sellers for a particular product or service.
The demand curve is downward-sloping.
The supply curve is upward-sloping.
A change in the price of a good will cause
A movement along the demand curve
A movement along the supply curve
Changes other than price
Cause a shift in demand
Cause a shift in supply
Supply and demand interact through the process of market coordination.
The equilibrium is the balancing point between the two opposing forces. The market clearing price and output are determined at the equilibrium point.
Shortages and surpluses are resolved in competitive markets.