market equilibrium, demand , and supply
do changes in consumers affect supply or demand
changes with consumers affect demand curves changes with producers affect suppliers
supply
quantity of a good or service that producers supply to the market at a given price at a particular time
changes in demand
the only thing that shows a change in demand is one of the 5 shifters. this is shown by moving to a different demand curve
substitution effect
when consumers react to an increase in a good's price by consuming less of that good and more of other goods
market equilibrium
when demand = supply, all products presented for sale are sold as the market is cleared. in free markets supply and demand determine price equilibrium. can be found on supply and demand curve as where lines meet
what is composite demand
when goods/services have more than one use so an increase in demand for one product leads to a fall in supply for the other
6 shifters of supply
1. Price of Resources 2. Number of Producers 3. Technology 4. Taxes and Subsidies 5. Expectations 6. changes to productivity of factors of production
Shifters of Demand
1. Tastes and Preferences 2. Number of Consumers 3. Price of Related Goods 4. Income 5. Future Expectations
demand curve
a graph of the relationship between the price of a good and the quantity demanded. It shows the quantity of a good that would be bough at any given price. They usually slope dow
supply curve
a graph of the relationship between the price of a good and the quantity supplied, slopes upward. higher the price charged the higher the quantity supplied
inferior goods
goods that consumers demand less of when their incomes rise
marginal utility
the extra satisfaction you gain from buying one extra unit
Change in price (supply)
Change in quantity supplied, movement along the supply curve
What is joint demand?
Demand for two different products that when combined make the product useful and are not useful without each other
normal goods
Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
complementary goods
Goods that are commonly used with other goods, they are in joint demand
excess demand (shortage)
Occurs when the quantity of good demanded is greater than the quantity supplied. This causes a shortage and makes price rise until equilibrium is reached
substitute goods
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
principle of diminishing marginal utility.
The more you consume of a product, the less satisfaction you will receive from each additional unit
income effect
as the price of a good decreases, the consumer's purchasing power increases, causing a change in quantity demanded for the good
supply and demand assumptions
cetirus paribus applies, all markets are perfectly competetive and supply and demand work separately from one another
shifts in demand curves to the left
decrease in demand
derived demand
demand of a good or factor of production used in making another good or service, e.g increase in demand for fencing would have an increase in demand for wood
what are external economic costs (externalities)
effects of producing or consuming a good/service on people who aren't involved in the making buying selling or consumption of the good/service
how shifts in demand curves affect market equilibrium
if demand curve shifts out, supply moves up supply curve until new equilibrium is reached if demand curve shifts in, supply contracts and moves down supply curve until equilibrium is found again
how shifts in supply curve affect market equilibrium
if the supply curve shifts outwards then price falls and the demand will move along curve to new equilibrium. if the supply curve shifts inwards price rises and demand contracts
shifts the demand curve to the right
increase in demand
change in price (demand)
movement along the demand curve
market forces
supply and demand
demand
the quantity of a good/service that consumers are willing and able to buy at a given price at a particular time
Joint supply
when one good is produced, another good is also produced from the same raw materials. eg when petrol is produced butane is also produced if price of a product increases then supply of it and any joint products will increase
excess supply (surplus)
when quantity supplied is more than quantity demanded. there is a surplus of the good, this causes supply to contract and price gets forced down.
market disequilibrium
when supply and demand aren't equal, or if there's excess supply or demand
what is competitive demand
when two goods are substitutes of one another they are in competitive demand