ECON 2105 Chapter 3
Equilibrium in a competitive market
when the quantity demanded of a good equals the quantity supplied of that good. The price at which this takes place is the equilibrium price (or market-clearing price) - Every buyer finds a seller and vice versa. - The quantity of the good bought and sold at that price is the equilibrium quantity.
quantity demanded
specific quantity associated with a specific price
demand curve
the graphical representation of the demand schedule. It shows how much of a good or service consumers want to buy at any given price. typically downward sloping
The market supply curve is
the horizontal sum of the individual supply curves of all firms in that market.
An increase in demand means that the quantity demanded ______ for any given price.
rises
When economists talk of increasing or decreasing demand, they mean what?
shifts in the demand curve—a change in the quantity demanded at any given price.
An increase in supply means that
a greater quantity is supplied for any given price.
The supply curve shows graphically how much of a good or service producers are willing to sell at any given price.
graphically how much of a good or service producers are willing to sell at any given price. typically upward sloping
A shift of the demand curve...
is a change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve
A movement along the demand curve...
is a change in the quantity demanded of a good that is the result of a change in that good's price.
As price falls, the __________ falls
quantity supplied
An increase in demand causes a _________ shift of the demand curve. A decrease in demand causes a ________ shift.
rightward leftward
The supply schedule shows what?
the quantity supplied at each price and is represented graphically by a supply curve. Supply curves usually slope upward. a table that shows how much of a good or service producers will supply at different prices.
shortage
A shortage exists when the quantity supplied falls short of the quantity demanded. A shortage occurs when the price is below its equilibrium level.
surplus
A surplus exists when the quantity supplied exceeds the quantity demanded. A surplus occurs when the price is above its equilibrium level.
A shift in the supply curve is
a change in the quantity supplied of a good at any given price.
A movement along the supply curve is
a change in the quantity supplied of a good that is the result of a change in that good's price.
If the demand for tires goes down when the price of gas goes up, then tires and gas are: a. substitutes. b. complements. c. unrelated. d. expensive.
b. complements.
if the demand of a product increases, then the supply of that product _____
decreases they are inversely related
quantity supplied
the quantity that producers are willing to produce and sell at a specific price
competitive market
- Many buyers and sellers (with complete information) - Same good or service
Technology shifts of the supply curve
... leads to a movement along the demand curve to a lower equilibrium price and higher equilibrium quantity. price falls, and quantity increases
What are the five main factors that shift the demand curve?
1. A change in the prices of related goods or services, such as substitutes or complements 2. A change in income: when income rises, the demand for normal goods increases and the demand for inferior goods decreases. 3. A change in tastes 4. A change in expectations 5. A change in the number of consumers
What causes a supply curve shift?
Change in input good prices (good that is used to make another good - ex: labor, raw materials, machinery) - Increase in price of input, quantity supplied output decreases and shifts to the left - Decrease in price of input, quantity supplied of output increases and shifts to the right Changes in the price of related goods and services - Increase in price of related good, quantity supplied of target good decreases and shifts the left - Decrease in price of related good, quantity supplied of target good increases and shifts to the right Changes in technology - Improvement in technology, quantity supplied increases and shifts to the right Changes in exceptions Changes in # of producers - # of producers increases, quantity supplied increases and shifts to the right Changes in # of buyers - # of buyers increases, quantity supplied increases and shifts to the right
What causes a demand curve to shift?
Changes in price of related goods - Substitutes: Two goods are substitutes if a fall in the price of one of the goods makes consumers less willing to buy the other good. Ex) Lower the price of busses, less people drive cars - Complements: Two goods are complements if a fall in the price of one good makes people more willing to buy the other good. Ex) Price of gas decreases (more people drive), increase in tire demand Changes in income - Normal goods: When a rise in income increases the demand for a good — the normal case — we say that the good is a normal good - Inferior goods: When a rise in income decreases the demand for a good, it is an inferior good Changes in tastes Changes in expectations Change in number of consumers
Simultaneous shifts of supply and demand
Small decrease in supply and large increase in demand: The increase in demand dominates the decrease in supply. The equilibrium price rises and the equilibrium quantity falls
Difference between quantity supplied and supplied, as well as quantity demanded and demand
So when there's a change in demand or supply, it means the entire curve shifts either to the left or the right but if there's a change in the quantity demanded or the quantity supplied, the curve doesn't shift, you just move along the existing curve Quantity one has to do with change in price of a good only. Looking to see as what the demand or supply is at that specific price is the quantity demanded and quantity supplied. When he curve shifts, that is a change in demand or supply, that means that the demand increases or decrease for a product at a specific price based on external reasons. Same for supply.
If the price of a commodity increases, you can expect the: a. supply to increase. b. quantity supplied to increase. c. supply to decrease. d. quantity supplied to decrease.
b. quantity supplied to increase.
A leftward shift of a supply curve could be caused by: a. an increase in the number of sellers. b. a technological improvement in production. c. an increase in the cost of an input. d. an increase in the number of buyers.
c. an increase in the cost of an input.
A decrease in the price of a good will result in? a. an increase in demand. b. a decrease in demand. c. an increase in the quantity demanded. d. a decrease in the quantity demanded.
c. an increase in the quantity demanded.
The market demand curve for a good or service is the...
horizontal sum of the individual demand curves of all consumers in the market.
The supply and demand model illustrates what?
how a competitive market, one with many buyers and sellers, none of whom can influence the market price, works. Five key elements: - Demand curve - Supply curve - Demand and supply curve shifts - Market equilibrium - Changes in the market equilibrium
demand schedule
is a table that shows the quantity demanded at each price and is represented graphically by a demand curve. is a table that shows how much of a good or service consumers will buy at different prices. *quantity demanded increases as the price decreases.*
Equilibrium and Shifts of the Demand Curve: A decrease in supply...
leads to a movement along the demand curve due to a higher equilibrium price and lower equilibrium quantity. Price rises, quantity falls
Equilibrium and Shifts of the Demand Curve: An increase in demand...
leads to a movement along the supply curve due to a higher equilibrium price and higher equilibrium quantity. price rises and quantity increases
Law of Demand
says that demand curves slope downward; that is, a higher price for a good or service leads people to demand a smaller quantity, other things equal.