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