Demand and Supply (How Markets Work)

factors that influence the selling plans of other prices

1. Price of factors of production 2. the price of related goods produced 3. Expected future prices 4. # of suppliers 5. Technology 6. The state of nature

Six factors that change demand

1. prices of related goods 2. expected future prices 3. income 4. expected future income and credit 5. population 6. preferences

Expected future income and credit

When income is expected to increase in the future or when credit is easy to obtain, the demand might increase now.

A shortage forces the price up

because of scarcity the price can increase to only be available to those that need the item inorder to help with the shortage

What are the two sides of a market

buyers and sellers

Higher price

buyers consume less, sellers produce more

Law of Demand

consumers will buy more of a good when its price is lower and less when its price is higher

Price Adjustments

discount and allowance pricing, segmented pricing, psychological pricing, promotional pricing, geographical pricing, dynamic pricing, international pricing

Why is there a higher price when their is a higher quantity supplied

there is an increase in marginal cost

Preferences

what a person likes and dislikes and the intensity of those feelings can determine the demand of a certain good

Substitution Effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods Energy bar and energy drink

complements in production

goods that must be produced together

equilibrium equation

Qs = Qd

Minimum supply price

the lowest price at which a product will be supplied

A change in quantity supplied versus a change in supply

A change in the quantity supplied is the movement along the supply curve A change in supply is the movement of the curve as a whole due to a change in a factor of production

Supply

A stock of a resource from which a person or place can be provided with the necessary amount of that resource. 1. Resources and Tech to produce it 2. Can profit from producing it 3. Plans to produce it and sell it

Prices of related goods produced

A substitute in production for a good is another good that can be produced using the same resources. The supply of a good increases if the price of a substitute in production falls. Goods are complements in production if they must be produced together. The supply of a good increases if the price of a complement in production rises.

Prices of related goods

An increase in the price of a substitute or complement can change the demand Substitute- an item that can substitute the need for another item - Ex. Energy bar or an energy drink Complement- an item that goes with the good - if the price of a substitute were to increase this would lead to a decrease in demand of the good in question Ex. Fish and Chips

Price as a Regulator

If the price is too high, the quantity supplied exceeds the quantity demanded. If the price is too low, the quantity demanded exceeds the quantity supplied.

Prices of Factors of Production

If the price of a factor of production used to produce a good rises, the minimum price that a supplier is willing to accept for producing each quantity of that good rises. So a rise in the price of a factor of production decreases supply and shifts the supply curve leftward.

Expected Future Prices

If the price of a good is expected to rise in the future, current demand for the good increases and the demand curve shifts rightward.

Expected future prices

If the price of a good is expected to rise in the future, current demand for the good increases and the demand curve shifts rightward.

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Most markets are unorganized collection of buyers and sellers

Change in Demand vs. Change in Quantity Demanded

Qd: change in amount purchased caused by a change in price (movement along the curve). D: shift of entire curve to left or right

equilibrium price and quantity

Qs= Quantity supplied Qd = quantity demanded P= a +bQs the slope is multiplied to the quantity supplied P= c -dQd the slope is multiplied to the quantity demanded To figure out the quantity at equilibrium set them equal to each other and solve for Q Then input this number in the supply or demand equation to determine the price of the good

Number of suppliers

The larger the number of suppliers of a good, the greater is the supply of the good. An increase in the number of suppliers shifts the supply curve rightward.

relative price

The price of a specific good or service in comparison to the prices of other goods and services.

Technology

a change in the technology to produced a good can decrease the price of production and lead to and increase in supply

inferior good

a good that consumers demand less of when their incomes increase

normal good

a good that consumers demand more of when their incomes increase

Competitive Market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Market

a place to find services

Market Equilibrium

a situation in which quantity demanded equals quantity supplied

A surplus forces the price down

a surplus leads to having to much of a quantity supplied this will lead to a decrease in price and this will then increase demand

Demand Schedule

a table that shows the relationship between the price of a good and the quantity demanded

Substitutes in production

alternative products that producers COULD use their resources to make

Lower price

higher quantity demanded

Income

if there is an increase in a consumers income this will lead to an increase in buying which will lead to an increase in demand.

The state of nature

natural forces can determine the supply of a good. For example a typhoon wipes out coffee bean plantations in Madagascar. This natural disaster would lead to a decrease in the supply of coffee beans

Income effect

people cannot afford to buy everything this leads to the substitution of buying items For example an energy bar being substituted for an energy drink or vice versa

y-axis

price

psychological pricing

pricing goods and services at price points that make the product appear less expensive than it is

x-axis

quantity demanded

Quantity Demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

What is the quantity supplied

the amount of a good that sellers are willing and able to sell

Law of supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises. When the price of a good lowers, the quantity supplied decreases

Price and opportunity cost

the highest value alternative forgone ratio of the price of the other good over the price of the good being asked about

Population

the larger a population the larger the increase in demand (Age groups can increase demand; small populations can decrease demand)

money price

the number of dollars that must be given up in exchange for a good or service Joe paid $20 dollars to buy a squish mellow plushy from Walmart

Equilibrium price

the price when quantity supplied and quantity demanded are the same

Relationship of a supply curve

the quantity supplied of a good and its price