Demand/Supply/Market

What does the supply curve show?

- The choice making behavior of sellers/producers - A graph of the quantity supplied of a good at different prices

Is there a tendency for price to move when the market is in equilibrium?

- Unless the demand or supply curve shifts, there will be no tendency for price to change. The equilibrium price in any market is the price at which quantity demanded equals quantity supplied. The equilibrium price in the market for coffee is thus $6 per pound. The equilibrium quantity is the quantity demanded and supplied at the equilibrium price. At a price above the equilibrium, there is a natural tendency for the price to fall. At a price below the equilibrium, there is a tendency for the price to rise. - A mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices

What does that cause in the market to QS and QD?

- When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result. - When a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result.

What does the demand curve show

A curve (or schedule) that shows the quantities of a good or service that people are willing and able to buy at different prices during a set period of time, ceteris paribus.

What is the relationship between Price and Quantity Supplied? (Inverse, Normal)

Law of supply shows that there is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus.

What is a shortage? What does it mean for QD and QS?

- A market condition existing at any price at where the quantity supplied is less than the quantity demand. - Quantity supplied (550) is less than quantity demanded (700). Or, to put it in words, the amount that producers want to sell is less than the amount that consumers want to buy. We call this a situation of excess demand (since Qd > Qs) or a shortage.

What is a surplus? What does it mean for QD and QS?

- A market condition existing at any price where the quantity supplied is greater than the quantity demand. - At this price, the quantity demanded is 500 gallons, and the quantity of gasoline supplied is 680 gallons. You can also find these numbers in Table 1, above. Now, compare quantity demanded and quantity supplied at this price. Quantity supplied (680) is greater than quantity demanded (500). Or, to put it in words, the amount that producers want to sell is greater than the amount that consumers want to buy. We call this a situation of excess supply (since Qs > Qd) or a surplus. -

What causes movement along the Supply curve?

- A movement along the supply curve will occur when the price of the good changes and the quantity supplied changes in accordance to the original supply relationship. - Change in quantity supplied because of a change in price

What causes a movement along the demand curve?

- A movement occurs along the demand curve when there's a change in the price of the good. - When a change in the quantity demanded is caused only by a change in price, and vice versa.

What is a normal good?

- Any good for which there is a direct relationship between changes in income and its demand curve. - A direct relationship is a positive relationship; the variables move in the same direction

What is an inferior good?

- Any good for which there is an inverse relationship between changes in income and its demand curve. - An indirect relationship is a negative relationship; the variables move in opposite directions.

What causes a shift in the demand curve?

- Based on things other than the change in price of the good. AKA Non price determinants. - A change in these 6 things causes a shift on the demand curve: • Non price determinants • Number of buyers in the market • Tastes and preferences • Income • Expectations of buyers • Prices of related goods

Know the difference between Change in Quantity Demanded and Changes in Demand?

- Change in Quantity Demanded: Movement along the Demand Curve based on a change in the price of the good. - Changes in Demand: Shift of the demand curve based on things other than the change in price of the good. AKA non price determinants.

Know the difference between Change in Quantity Supplied and Changes in Supply?

- Change in Quantity Supplied: movement along the supply curve based on a change in the price of the good. - Changes in Supply: shift of the supply curve based on things other than the change in price of the good.

Starting in equilibrium, if Demand increases (or decreases), what happen to P and Q?

- If demand increases the EP and EQ will increase. - Example: This is because more people are willing to buy the product (hence an increase in demand). More people buying a product means a higher quantity will be sold (an increase in equilibrium quantity) and because more people are buying it, the price can go up (higher equilibrium price). - If a demand decreases EP and EQ will drop. - Example: With less people interested in buying the good (a decrease in demand) we see equilibrium quantity drop. In order to sell these goods, the price has to drop as well.

Starting in equilibrium, if Supply increases (or decreases), what happen to P and Q?

- If supply increases it will cause EP to fall while EQ rises. - Example: This is because more goods are being supplied to the market so we would expect quantity to rise, and the prices to fall. - If supply decreases fewer goods are being supplied so we would expect EQ to fall and EP to rise as fewer goods are in the market.

What is the relationship between Price and Quantity Demanded? (normal, inverse)

- Law of Demand denotes an inverse relationship between price and quantity. - As price of a good increases, the quantity demanded of the good falls, and as the price of a good decreases, the quantity demanded of the good rises, ceteris paribus. Restated: there is an inverse relationship between price (P) and quantity demanded (Qd).

What is a price floor? Price ceiling?

- Price floor is a legally establish minimum price seller can be paid. - Price ceiling a legally establish maximum price a seller can charge.

If I give you a table with different Prices, QS and QD be able to determine equilibrium price.

- Quantity supplied is equal to quantity demanded ( Qs = Qd). ... If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus. Market price will fall

What causes a shift in the Supply curve?

- The curve does shift when there is a change in a non price determinant - A shift in a supply curve is caused by a change in: • Number of sellers in the market • Technology • Resource prices • Taxes and subsidies • Expectations of producers regarding the product • Prices of other goods and services the firm could produce

What does equilibrium mean in the market? (QS and QD)

The state in which market supply and demand balance each other and, as a result, prices become stable. Generally, when there is too much supply for goods or services, the price goes down, which results in higher demand. The balancing effect of supply and demand results in a state of equilibrium

With a shortage or a surplus is there any pressure for price to change?

Thus, a surplus creates downward pressure on the price, and a shortage creates upward pressure. As long as quantity demanded differs from quantity supplied, this difference forces a price change. Note that a shortage or a surplus depends on the price.