Microeconomics: Chapter 3 (Supply&Demand)

nonprice determinance of supply

NAFTE

movement along the supply curve

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

"C" in TICSEN

complements price (eaten together ex. water and popcorn) buy more of 1, buy more of the other Pr popcorn DEC, Qd popcorn INC, water demand INC Pr popcorn INC, Qd popcorn DEC, water demand DEC (price/demand= change in demand price/quantity demanded=change in quantity demanded)

"E" in TICSEN

expectations of price -expected change causes a change in demand expect price of water to inc in future= buy more NOW (Dw inc) expect price of water to dec in future= buy fewer NOW (Dw dec)

"E" in NAFTE

expectations of price expect price to dec in future= INC supply now to make more expect price to inc in future= DEC supply now to make more later

"F" in NAFTE

factor prices (input) dec FPmilk, inc Smilk inc FPmilk, dec Smilk

demand curve

graphical representation of the demand schedule; shows the relationship between quantity demanded and price

complements

if a rise in the price of one good leads to a decrease in the demand for the other good used together; buy more of 1, buy more of other

substitutes

if a rise in the price of one good leads to an increase in the demand for the other good one or the other; use 1 in place of the other

individual supply curve

illustrates the relationship between quantity supplied and price for an individual producer

changes TO equilibrium

in disequilibrium, theres always a tendency to change 2 types of market imbalances: surplus or shortage 2 types of market forces: competition among sellers or competition among buyers

inferior good

when a rise in income decreases the demand for a good consumption/income are inversely related ex. ramen noodles, boxed wine, used cars

normal good

when a rise in income increases the demand for a good (the normal case) consumption/income are directly related ex. new cars, fancy food

what happens when demand curve shifts?

when demand increases, the equilibrium price and equilibrium quantity both rise. when demand decreases, the equilibrium price and equilibrium quantity both fall.

simultaneous changes: when can you NOT say something definite?

when multiple changes of determinants leads to DIFFERENT directional changes in Peq and Qeq

simultaneous changes: when can you say something definite?

when multiple changes of determinants leads to the SAME directional change in Peq and Qeq

when is a competitive market in equilibrium?

when price has moved to a level at which the quantity of a good or service demanded equals the quantity of that good or service supplied

what happens when supply curve shifts?

when supply increases, the equilibrium price FALLS and the equilibrium quantity RISES. when supply decreases, the equilibrium price RISES and equilibrium quantity FALLS.

shortage

when the quantity demanded exceeds the quantity supplied; occurs when price is below its equilibrium level

surplus

when the quantity supplied exceeds the quantity demanded; occur when price is above its equilibrium level

2 types of market imbalances

1. SURPLUS (Qs>Qd) at prices above equilibrium 2. SHORTAGE (Qd>Qs) at prices below equilibrium

2 reasons technology could decrease

1. OSHA (occupational safety and health administration) -makes sure people aren't using bad tech 2. environmental reasons- harms to environment

change in demand (delta D)

1. caused by a change in nonprime determinance of demand (TICSEN) 2. shown by a shift of the entire demand curve 3. there's been a change in the amount that the consumer is willing and able to purchase at any commodity price (price hasn't changed, but consumption has)

change in supply (delta S)

1. caused by change in nonprice determinance of supply 2. shown by shift in the entire supply curve 3. change in the amount that the producer is willing and able to offer at any commodity price (price hasn't changed, but amount offered changes)

change in quantity supplied (delta Qs)

1. caused only by a change in price 2. shown by movement along supply curve 3. change in price and a corresponding change in the amount the producers are willing and able to offer

2 types of market forces

1. competition among SELLERS: dec price to eliminate surplus (dec Qs, inc Qd) 2. competition among BUYERS: inc price to eliminate shortage (inc Qs, dec Qd)

2 reasons you buy

1. responding to a change in price or something else 2. changes in quantity demanded

"I" in TICSEN

Income relation depends on if good is normal or inferior if normal: shift right is INC in demand/income shift left is DEC in demand/income if inferior: shift left is dec in demand/inc in income if inferior shift right is inc in demand/ dec in income

nonprime determinance of demand

TICSEN

"T" in TICSEN

Taste inc taste= good more popular= inc demand dec taste= good less popular= dec demand

shift of the supply curve

a change in the quantity supplied of a good or service at any given price; represented by the change of the original curve to a new position, denoted by a new curve

input (factor)

a good or service that is used to produce another good or service

law of demand

a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service refers to inverse relation between price and quantity demanded (MAJOR EXCEPTIONS: vertical demand curve= regardless of price, Qd is same)

quantity demanded (delta Qd)

actual amount of a good or service consumers are willing to buy at some specific price 1. only caused by change in price 2. shown by movement along the demand curve 3. change in price and a corresponding change in amount consumer is willing and able to consume

"A" in NAFTE

alternative goods prices (one or other; if they can be produced from same factors of production, 2 goods are alternatives)ex. cheese/butter/yogurty, milk/cream/butter) Pr butter dec, Qs butter dec, INC Smilk Pr butter inc, Qs butter inc, DEC Smilk

disequilibrium price

any price at which Qs is not equal to Qd; always a tendency to change

2 ways to change what you offer

change in quantity supplied or change in supply

shift of the demand curve

change in the quantity demanded at any given price, represented by the shift of the original curve to a new position, denoted by a new curve

movement along the demand curve

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

changes OF equilibrium

inc/dec supply or inc/dec demand everything moves same way except for Peq when supply changes (opp)

competitive market

market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

supply and demand model

model of how a competitive market behaves 5 key elements: demand curve supply curve set of factors that cause the curves to shift market equilibrium (equilibrium price/quantity) way market equilibrium changes when curves shift

"N" in TICSEN

number of buyers inc number of buyers= inc demand dec number of buyers= dec demand

"N" in NAFTE

number of sellers inc sellers= inc supply dec sellers= dec supply

ceteris paribus

other things equal; hold other things constant except price

equilibrium price (market-clearing price) Peq

price at which the quantity of a good or service demanded equals the quantity of that good or service supplied

equilibrium quantity Qeq

quantity of the good or service bought and sold at that price

supply curve

shows the relationship between quantity supplied and price graph of supply schedule; positive sloped MAJOR EXCEPTION: vertical supply curve (regardless of price, quantity supplied is same amount) b/c: 1. quantity is given and fixed for all time 2. extremely short production horizon (not enough time to mobilize required resources) ex. ancient paintings

demand schedule

shows various quantities of a commodity that a consumer is willing and able to purchase at various commodity prices

supply schedule

shows various quantities of a commodity that a producer is willing and able to offer at various commodity prices

market equilibrium

situation in which ones attained tends to be maintained; no tendency to change at Peq: Qs=Qd

"S" in TICSEN

substitutes price (one or other ex. water and soda) use 1 in place of the other inc Pr soda, dec Qd soda, inc Dwater dec Pr soda, inc Qd soda, dec Dwater

"T" in NAFTE

technology inc tech, inc supply (inc profit) dec tech, dec supply (dec profit)

quantity supplied

the actual amount of a good or service people are willing to sell at some specific price