[ECON 201] Chapter 4

perfectly competitive market

(1) the goods offered for sale are all exactly the same (2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price

Three steps for Analyzing changes in equilibrium

(a) Decide whether the event shifts the supply or demand curve (b) Decide in which direction the curve shifts (c) Use the supply and demand diagram to see how the shift changes the equilibrium price and quantity

A change in which of the following will NOT shift the demand curve for hamburgers? a. the price of hot dogs b. the price hamburgers c. the price of hamburger buns d. the income of hamburger consumers

(b) the price of hamburgers

shortage

a situation in which quantity demanded is greater than quantity supplied

equilibrium

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied, holding constant everything else that influences how much producers of the good want to sell

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? a. prices and quantities both rise. b. prices and quantities both fall. c. prices rise, quantities fall. d. prices fall, quantities rise.

a. Prices and quantities both rise.

The discovery of a large new reserve of crude oil will shift the ___ curve for gasoline, leading to a _____ equilibrium price. a. supply, higher b. supply, lower c. demand, higher d. demand, lower

a. supply, higher

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? a. an increase in the price of peanut better, a complement to jelly b. an increase in the price of marshmallow fluff, a substitute for jelly c. an increase in the price of gapes, an input into jelly d. an increase in consumers' incomes, as long as jelly is a normal good

c. an increase in the price of grapes, an input to jelly

competitive market

describes a market in which there are so man buyers and so many sellers that each has a negligible impact on the market price

inc. and dec. in demand

inc— demand curve shifts to the right dec— demand curve shifts to the left

market

is a group of buyers and sellers of a particular good or service. The buyers as a group determine the demand for the product, and the sellers as a group determine the supply of the product

demand curve

line relating price and quantity demanded slopes downward because, other things being equal, a lower price means a greater quantity demanded

monopoly

one company, one seller eg. cable company that supplies cable to one town. There are not alternative companies

An increase in____ will cause a movement along a given demand curve, which is called a change in _________. a. supply, demand b. supply, quantity demanded c. demand, supply d. demand, quantity supplied

b. supply, quantity demanded

price takers

buyers and sellers in a perfectly competitive market must accept the price that the market determines

supply curve

slopes upward because other thing being equal, a higher price means a greater quantity supplied

market demand curve

sum of all the individual demands for a particular good or service shows how the total quantity demanded of a good varies as the price of the good varies, while all the other factors that affect how much consumers want to buy are held constant

quantity demanded

the amount of a good that buyers are willing and able to purchase

quantity supplied

the amount of a good that sellers are willing and able to sell

law of demand

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

law of supply

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

normal good

when demand of good falls when income falls

surplus

when quantity supplied is greater than quantity demanded

Supply and Demand

forces that make market economies work— they determine the quantity of each good produced and the price at which it is sold

equilibrium price

the price that balances quantity supplied and quantity demanded

equilibrium quantity

the quantity supplied and quantity demanded at the equilibrium price

scalping

ticket scalping, also known as ticket resales, is the practice of buying tickets to an event and reselling them for more than you paid them face value of a ticket is lower than the market eq. of price

Variables that shift demand curve

Income— lower income means less quan. demanded, so left shift, higher income means more quan. demanded, so right shift Prices of related goods— frozen yogurt & ice-cream, when one Price rises, the demand falls for that one and demand inc. for other product Tastes— if you like something, you buy more of it Expectations— future— if you expect to get a raise, you may choose to save less now and spend more or your current income. Number of Buyers— market demand depends on the number of these buyers. If Peter were to join Cate and Nick to get ice cream, QD would be higher at every price, and market demand would increase

Shifts in the Supply Curve

Input prices— when an input price rises, producing that object is less profitable, and firms supply less of it. Negatively related Technology— machines make costs less, and raises supply of that object Expectations— firms expects ice cream to rise in price later, it might put some of its current production into storage and supply less to market today # of sellers— If Ben or Jerry were to retire from ice cream, the supply in market would fall

Shifts in curves vs. Movements along curves

Supply refers to the position of the supply curve, whereas the quantity supplied refers to the amount suppliers wish to sell Inc. in demand causes eq. price to rise. When the price rises, the quantity supplied rises. This inc. in quantity supplied is represented by the movement along the supply curve. A SHIFT IN THE SUPPLY CURVE IS CALLED A "CHANGE IN SUPPLY", AND A SHIFT IN THE DEMAND CURVE IS CALLED A "CHANGE IN DEMAND". A MOVEMENT ALONG A FIXED SUPPLY CURVE IS CALLED A "CHANGE IN QUANTITY DEMANDED" AND A MOVEMENT ALONG A FIXED DEMAND CURVE IS CALLED A "CHANGE IN THE QUANTITY DEMANDED"

Movie tickets and DVDs are substitutes. If the price of DVDs increases, what happens in the market for movie tickets? a. The supply curve shifts to the left b. The supply curve shifts to the right c. The demand curve shifts to the left. d. The demand curve shifts to the right

d. The demand curve shifts to the right

inferior good

eg. bus when demand for good rises when income falls

law of supply and demand

the price of any good adjusts to bring the quantity supplied and quantity demanded for that good into balance