Ch 3. Forces of Demand & Supply

demand shifters: population

The characteristics of a population with respect to age, race, and gender. (An increase in the elderly population increases the demand for medical care, a large increase in the number of school-going children increases the demand for backpacks.)

The price of Burger​ King's Whopper hamburger increases.

demand for​ McDonald's Big Mac hamburgers to increase

A perfectly competitive market is a market that meets the conditions of

​(1) many buyers and​ sellers, (2) all firms selling identical​ products, and​ (3) no barriers to new firms entering the market.

Can we use this information to be certain whether the equilibrium quantity of coconut oil increased or​ decreased?

​Yes, the equilibrium price unambiguously decreased.

Goods and services that can be used for the same purpose are​ ________, and goods and services that are used together are​ ________.

​substitutes; complements

-The demand for organic milk and the supply of organic milk have both been increasing.

-this scenario can account for the price and quantity of organic milk both falling if the decrease in demand is large enough relative to the

Equilibrium price = ___________

200, $150,000

Assumption

A belief or statement taken for granted without proof.

perfectly competitive market

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

shortage

A situation in which quantity demanded is greater than quantity supplied

surplus

A situation in which quantity supplied is greater than quantity demanded

demand shifters: expectations

An expected decrease in the price tomorrow, decreases demand today. (You expect a Labor Day sale tomorrow (decrease in price) on a mattress that you are interested in, what would you do today?)

change in quantity supplied

Caused by a change in market price and is shown by a movement along the supply curve.

demand shifters: tastes

Changes in tastes caused by fads, fashions, and advertising can all increase or decrease demand

What is the effect on the price of​ health-care services over​ time?

It increases because demand increased by more than supply.

Are PopSockets and similar products substitutes for or complements to​ smartphones?

Phone grips and smartphones are complements because people who buy a smartphone may also buy a phone grip to help reduce the likelihood of dropping the phone.

supply shifters: prices of related goods in production (alternative products)

Product that may be purchased in place of another product (an illinois farmer can plant corn or soybeans, if the price of soyboys rises he will plant (supply) less corn.)

change in supply

Results from sellers attempting to sell more at each and every price. This is caused by a change in a variable other than market price.

Ceteris Paribus

The requirement that when analyzing the relationship between two variables—such as price and quantity demanded—other variables must be held constant ("all else equal")

inputs of production

The things used to produce a good or service

T or F: A market that is not in equilibrium moves toward equilibrium​ and, once a market is in​ equilibrium, it remains in equilibrium unless either the demand curve or the supply curve shifts.

True

more/less, increase/decrease

_____ firms in the market will _______ the supply of the good

movement along the supply curve

a change in the quantity supplied of a good arising from a change in the good's price

demand curve

a curve that shows the relationship between the price of a product and the quantity of the product demanded

Which of the following events would cause the supply curve to increase from S1 to S3​?

a decrease in the price of inputs

Supply shifters: future expectations

a firm expects future prices to go up/down tomorrow, their supply today will increase/decrease

supply curve

a graph of the relationship between the price of a good and the quantity supplied

Market

a group of buyers and sellers of a particular good or service

​McDonald's distributes $1.00 off coupons

a movement along the demand curve for​ McDonald's Big Mac hamburgers.

supply shifters: technology (technological change)

a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs

market equilibrium

a situation in which quantity demanded equals quantity supplied

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

quantity supply

amount of the good that producers are willing and able to sell at a given price

cause of the entire supply curve to shift

any change in supply aside from price

shifting in the demand curve

anything that affects the buyers' decision other than the price of the good - price of the good in question is constant

price takers

buyers and sellers have no effect on prices

movement along the demand curve cause

change in the price of a product being examined

_________ are willing and able to sell.

consumers, firms

supply curve

curve that shows the relationship between the price of a product and the quantity of the product demanded.

During surpluses, firms will have unsold goods piling​ up, which gives them an incentive to increase their sales by _________ the​ price, and doing so will simultaneously __________ the quantity demanded and __________ the quantity supplied.

cutting, increase, decrease

The price of fries increase due to a potato shortage

decrease the demand for McDonalds Big Mac Burgers

decline in incomes

demand for​ McDonald's Big Mac hamburgers to shift to the right if they are inferior goods.

decrease in supply

shift to the left

increase in supply

shift to the right

In the​ diagram, point A provides the​ _____, point B the​ _____, and point C the​ _____.

equilibrium​ price; market​ equilibrium; equilibrium quantity

The oil supply curve would shift to the right if

future oil prices were expected to be lower.

substitutes

future products are ______ for current products

Demand Shifters (income): inferior goods

goods for which the demand increases as income falls and decreases as income rises (a used car)

Demand Shifters (income): normal goods

goods for which the demand increases as income rises and decreases as income falls (That Michelin star restaurant you've been eyeing since you watched Chef's Table on Netflix. But you can only afford to go there after you get a well-paying job.)

demand shifters: substitutes

increase (decrease) in the price of one good (Pepsi) causes an increase (decrease) in the demand for the other good (Coca-Cola)

demand shifters: complements

increase (decrease) in the price of one good causes a decrease (increase) in the demand for the other good.

During shortages, firms will realize that they can ______ the price without _____​ sales, and doing so will simultaneously ________ the quantity supplied and __________ the quantity demanded. This will ______ the shortage and ______ pressure will continue until the market is in equilibrium.

increase, losing, increase, decrease, reduce, upward

change in quantity demanded

movement along the demand curve showing that a different quantity is purchased in response to a change in price

A good for which demand increases as income rises is​ ________, and a good for which demand increases as income falls is​ ________.

normal​ good; inferior good

Market equilibrium

point at which the demand curve crosses the supply curve

Refer to the graph. A change in demand is illustrated by the move from​ ________, and a change in quantity demanded is illustrated by a movement from​ ________.

point c to a, a to b

decreases in price affect the __________ (quantity​ demanded/demand.)

quantity demanded

income effect

results when a price increase causes real income to decline because consumers have less purchasing power (likely due to a decrease in income) so there is a change in quantity demanded in a good

decrease in demand

shift in the left of the demand curve

increase in demand

shift in the right of the demand curve

Equilibrium price will _______ and equilibrium quantity will __________ as a new equilibrium is established.

shortage, rise, fall

When the quantity demanded is greater than the quantity​ supplied, there is a ________ in the market, some consumers will be _______ to buy th eproduct at current price

shortange, unable

supply shifters: input price decrease

supply of good decrease when input price decrease

supply shifters: input prices increase

supply of good increase when input price increase

Equilibrium price will _____ and equilibrium quantity will _______ as a new equilibrium is established.

surplus, fall, fall

When the quantity supplied is greater than the quantity​ demanded, there is a _________, some consumers will be _________ to buy the product at the current price.

surplus, unwilling

quantity demanded

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

law of supply

the claim that the quantity supplied of a good increases (decreases) when the price of the good rises (falls), other things equal

law of demand

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

supply shifters: prices of related goods in production (together products)

two products are necessarily produced together (cattle provide both beef and leather, an increase in the price encourages more cattle farming, and hence increase the supply of leather)

subsitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

supply shifters: number of firms

when more firms enter/exit the market, the number of suppliers increase/decrease, increasing/decreasing the number of goods supplied.

a change in the price of the good or service (would/would not) shift the demand curve for a good or service

would not