Econ 101 Ch. 2-3 Demand & Supply
To find market demand curve,
Survey each customer to find their individual demand curves. For each price, add up the quantities that the individuals are willing to buy. Scale the total quantity up so that it would represent the entire population. For each price, plot the total quantity demanded by the entire population.
Price-Taker
someone who charges at the market price and whose actions do not affect the market price
Interdependence Principle
supplier's choice depends on other factors
Law of Demand
tendency for quantity demanded to be higher when price is lower
Law of Supply
tendency for quantity supplied to be higher when price is higher
Rational Rule for Sellers
to maximize your profits. Keep applying the rule and producing until price = marginal cost.
Business Productivity and Technology
when businesses figure out how to produce more at a lower cost, supply increases
Decrease Supply
shift of supply curve to left
Increase in Supply
shift of supply curve to right
Input Prices
a change in price of inputs will cause a change in price of final products and will cause a shift in supply curve
Individual Supply Curve
a graph plotting the quantity of an item that a business plans to sell at each price; upward sloping; represents marginal cost curve
Market Demand Curve
a graph plotting the total quantity of an item demanded by the entire market, at each price
Market Supply Curve
a graph plotting the total quantity of an item supplied by the entire market, at each price
Individual Demand Curve
a graph that shows the quantity of an item that someone plans to buy at each price; always downward sloping; represents marginal benefits
Price changes cause
a movement along a demand curve. They do not shift the demand curve.
Shift in the Demand Curve
a movement of the demand curve itself
Movement Along Supply Curve
a price change causes movement from one point on a fixed supply curve to another point on same curve
Decrease in Demand
a shift of the demand curve to the left
Increase in Demand
a shift of the demand curve to the right
Substitutes-In-Production
alternative uses of your resourses; your supply of a good will decrease if the price of a substitute-in-production rises
The Rational Rule for Buyers
buy one more item if marginal benefit of one more is greater or equal to the price
Change in Quantity Supplied
change in quantity associated w movement along a fixed supply curve
Fixed Cost
costs that don't vary when you change the quantity of output you produce (e.g. monthly rent)
Variable Costs
cots that vary w the quantity of output you produce
Diminishing Marginal Benefit
each additional item yields a smaller marginal benefit than the previous item
Complements-In-Production
goods that are made together; your supply of a good will decrease if the price of a complement-in-production rises
Expectations
if a seller expects the price of a product to rise next year, they will store the product (decrease the supply) until next year
The Type and Number of Sellers
if businesses enter market, supply increases
Six Factors Shifting the Demand Curve
income (normal v inferior goods), preferences, prices of related (complementary v substitute goods), expectations, congestion and network effect, type and number of buyers
Choosing the Best Quantity to Supply
marginal, cost-benefit, opportunity cost, interdependence principle
Perfect Competition
markets in which 1) all firms in an industry sell an identical good; and 2) there are many buyers and sellers, each of whom is small, relative to the size of the market
Shift in Supply Curve
movement of supply curve itself