ECO 155 Chapter 4

supply, quantity supplied

An increase in _____ will cause a movement along a given demand curve, which is called a change in _____

Many buyers & many sellers, each has a negligible impact on market price

Competitive market

Toothpaste and toothbrush

Compliment example

Shows how price affects quantity demanded, other things being equal

Demand curve

T.R.I.B.E Tastes/preferences, Related goods & services, Income, number of Buyers, Expectations

Demand curve shifters

Price has reached the level where quantity supplied equals the quantity demanded

Equilibrium

Prices and quantities both rise

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

When price of good rises, quantity demanded of good falls. When price falls, quantity demanded rises

Law of Demand

When the price of a good rises, the quantity supplied of the good rises. When the prices fall, the quantity supplied falls

Law of Supply

Sum of all individual demands for a good or service

Market demand

The demand curve shifts to the right

Movie tickets and film streaming services are substitutes, if the price of film streaming increases, what happens in the market for movie tickets?

Monopoly

One seller

All goods exactly the same. Buyers and sellers are so numerous that no one can affect the market price. "Price takers"

Perfectly competitive market

Amount of good that buyers are willing and able to purchase

Quantity demanded

Quantity demanded is greater than quantity supplied

Shortage (excess demand)

Colgate vs. Crest

Substitute example

T.I.E.S Technology, Input prices, Expectations about future, number of Sellers

Supply curve shifters

Quantity supplied is greater than quantity demanded

Surplus (excess supply)

Supply, lower

The discovery of a large new reserve of crude oil will shift the _____ curve for gasoline, leading to a _____ equilibrium price.

A change in which of the following will NOT shift the demand curve for Coca Cola 1. The price of Coca Cola 2. The price of Pepsi Cola 3. The weather channel predicts temperature will rise above 90 during the data 4. All of the above

The price of Coca Cola

Oligopoly

A few sellers

1. Decide whether the event shifts the supply curve, demand curve, or both curves 2. Decide whether the curve shifts to the right or to the left 3. Use the supply-and-demand diagram: compare the initial and new equilibrium, effects on equilibrium price and quantity

3 steps to analyzing changes in equilibrium

Price of hamburger

A change in which of the following will NOT shift the demand curve for hamburgers?

Think about the demand supply model for orange juice in America. Suppose a cold snap hits Florida. We observe the price of orange juice rises in the supermarkets throughout the country. Assume consumer demand remains unchanged. Which of the following statements correctly predict the shifts in demand or supply or both?

The supply curve shifts to the left, while demand curve remaining unchanged

If two goods are complements: good A and good B, if the price of good A increases then the demand for good B will decrease. True or False

True

Josh explains to Jose that apartment rent in the city of Springfield does not depend on the wish of the landlord or the housing agency. Since we live in a competitive market, market forces determine the rent. True or False

True

An increase in the price of one will lead to a decrease in the demand for the other

Two goods are compliments if:

An increase in the price of one leads to the increase in demand for the other

Two goods are substitutes if:

An increase in the price of grapes, an input to jelly

Which of the following might lead to an increase is the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?

If the demand for tomato ketchup increase but the supply decrease simultaneously, we can predict that:

equilibrium price will rise, but changes in equilibrium quantity is ambiguous