Chapter 4- Demand and Supply
Law of market forces
when there is a surplus, the price falls; and when there is a shortage, the price rises.
Predicting price changes; Three questions
1. Does the event influence demand or supply? 2. Does the event Increase or decrease demand or supply-shift the demand curve or the supply curve rightward or leftword? 3. What are the new equilibrium price and equilibrium quantity and how have they changed?
Change in the quantity supplied
A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good.
Change in demand
A change in the quantity that people plan to buy when any influence on buying plans other than the price of the good changes. The main influences on buying plans that change demand are: 1.Prices of related goods 2. Expected future Prices 3. Income 4. Expected future income and credit 5. Number of buyers 6. Preferences
Change in supply
A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.
Decrease in both demand and supply
A decrease in demand or a decrease in supply decreases the equilibrium quantity. So when demand and supply decreases together, the quantity decreases.
Inferior good
A good for which demand decreases when income increases and demand increases when income decreases.
Normal good
A good for which demand increases when income increases and demand decreases when income decreases.
Substitute in production
A good that can be produced in place of another good.
Complement
A good that is consumed with another good.
Complement in production
A good that is produced along with another good.
Substitute
A good what can be consumed in place of another good.
Supply Curve
A graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same.
Income
A rise in income brings an increase in demand and a fall in income brings a decrease in demand for normal good. A rise in income brings a decrease in demand and a fall in income brings an increase in demand for an inferior good.
Expected future prices
A rise in the expected future price of a good increases the current demand for that good and a fall in the expected future price decreases current demand.
Increase in both demand and supply
An increase in demand or an increase in supply increases the equilibrium quantity. So when demand and supply increase together, the quantity increases.
Law of Demand
Other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases. It assumes a limited budget, and people have inventive to find the best deals available.
Law of Supply
Other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases.
Number of sellers in a market
The greater the number of sellers in a market, the larger us the supply.
Changes in both demand and supply
When events occurthat change both demand and supply, you can find the resulting change in the equilibrium price and equilibrium quantity by combining the cases you've just studied.
Expected future income and credit
When income is expected to increase in the future, or when credit is easy to get and the cost of borrowing is low, the demand for some goods increases. When income is expected to decrease in the future, or when credit is hard to get and the cost of borrowing is high, the demand for some goods decreases.
Market Equilibrium
When the Quantity demanded equals the quantity supplied- buyers' and sellers' plans are in balance
Quantity Demanded
The amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price. Measure as an amount per unit of time (X per minute/day/week/ ect).
Quantity Supplied
The amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price.
Prices of resources and other inputs
Supply changes when the price of a resource or other input used to produce the good changes.
Preferences
Tastes, or preferences, influences demand. when preferences change, the demand for one item increases and the demand for another item (or items) decreases.
Demand Curve
The Graph of the relationship between the quantity demanded of a good and its price when all the other influences on buying plans remain the same.
Change in quantity demanded
A change in the quantity of a good that people plan to buy that results from a change in the price of the good with all other influences on buying plans remaining the same.
Demand Schedule
A list of the Quantities demanded at each different price when all the other influences on buying plans remain the same.
Supply schedule
A list of the quantities supplied at each different price when all the other influences on selling plans remain, the same.
Expected Future Prices
Expectations about future prices influence supply.
Prices of related goods
Goods have substitutes and complements.
Productivity
Productivity is output per unit of input. An increase in productivity lowers the cost of producing the good and increases its supply. A decrease in productivity has the opposite effect and decreases supply.
Change in the price of a substitute in production
The Supply of a good decreases if the price of one of its substitutes in production rises; and the supply of a good increases if the price of one of its substitutes in production falls.
Number of buyers
The greater the number of buyers in a market, the larger is demanded. For example the demand for parking spaces, movies, bottled water, or just about anything is greater in New York City than Boise.
Equilibrium price
The price at which the quantity demanded equals the quantity supplied.
Equilibrium Quantity
The quantity bought and sold at the equilibrium price.
Demand
The relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same. The quantity demanded is one quantity at one price. Demand is a list of quantities at different prices illustrated by a demand schedule and a demand curve.
Supply
The relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same.
Market Demand
The sum of the demands of all the buyers in the market.
Market Supply
The sum of the supplies of all the sellers in the market.
Change in the price of a complement in production
The supply of a good increases if the price of one of its complements in production rises; and the supply of a good decreases if the price of one of its complements in production falls.
Demand and Supply
This is the study of buyers in a competitive market