Supply and Demand

movement along supply curve

price change leads to change in quantity supplied

*the market for corn is in equilibrium, which of the following is most likely to increase the equilibrium price of corn

-increase production of corn based ethanol

5 shifters of supply curve

-input price -change in price of related goods -change in technology -change in expectation -change in number of producers

change in income

-normal and inferior goods -demand for a normal good will increase when income rises -inferior goods demand will decrease when income rises

*if goods A and Z are complements, an increase in price of good Z will

-increase price of good A and shift demand curve left -only A

*a decrease in demand causes the equilibrium price to ___ and equilibrium quantity to _____

increase then fall

*a shift to the right of the demand curve would be caused by anything except

-increase in price of substitute( no bc if substitute increases, then the demand for that will decrease and demand for shoes increase) -decrease in price of complement(no because if complement decrease price, then shoe will decrease in price and will shift demand to right) ***decrease in population -increase in income given that shoes are a normal good (if normal good and they have more income, they will shift curve to right)

*an increase in supply can result from

-an advancement in technology for producing that good NOT an increase an input prices NOT a decrease in number of sellers in the market NOT supplier's expectations of higher prices in future

shifts of BOTH demand and supply

-can happen simultaneously -shift in opposite: equilibrium price will rise, but the quantity is unsure of -shift in same: change in quantity is predictable, but price is unsure of -curve that shifts greater distance has greater effect on changes in eq price and quantity

5 shifters of demand curve

-change in price of related goods -change in income -change in tastes -change in expectations -change in the number of consumers

*which factor will result solely in a MOVEMENT along the demand curve for a particular good

-change in price of that good -only a change price of that good along will result in movement

pair of good complements

-complementary goods literally complement each other -pb and j -gas to cars -they go together -if price of a increases, demand of a decreases, and because they're usually bought together, the demand for b will also decrease -if price of cars increase, demand for gas will decrease -you cannot use one item without the other, so the demand is tightly intertwined

* a ___ occurs when price is above market equilibrium

-price is higher than market clearing price -less demand bc high price but high supply bc they want lots of profit -therefor it is a surplus

supply and demand model

-principle in a market moves to its equilibrium/market-clearing price -quantity demand = quantity supplied

pair of good substitutes

-substitute for something else -oranges and apples -if price increases for a, the demand for a decreases, whille the demand for b will increase

*if bagels and doughnuts are substitute goods and price of bagels is reduced

-substitute goods literally means substitute -replace one for another -demand curve for doughnuts will shift left bc lower price of doughnuts create more demand for doughnuts

change in related

-substitutes and complemetns -quantity of one good willing to supply differs in response to others -substitutes in production : if price of a rises, then the supply of b will decrease -complements: if price of a rises, then the supply of b will increase

*increase in the cost of coffee beans, used to make coffee, will cause the _____ for coffee to

-supply, left -input item

surplus vs shortage

ABOVE : SURPLUS BELOW : SHORTAGE DRAW THAT SHIT OUT

shift of supply curve

change in quantity supplied at the same price

*the cost of sensors falls, ad campaign makes digital cameras more fashionable equilibrium price will ___ equilibrium quantity will ___

cost of sensors falling will shift supply curve right ad campaign shifts demand right -bc shift the same way price is unpredictable, but there is an increase in quantity

supply and demand model

illustrate what happens in a competitive market

*a decrease in demand, with no change in supply, will lead to a ___ in equilibrium quantity and a ____ in equilibrium price

decrease, decrease

why does demand curve slope downward

law of demand -higher price for a good leads people to demand a smaller quantity

movement vs shift

movement-a price change of a product is the one that leads to a change in quantity demanded shift- a change in the quantity demanded at the same price (decreasing demand means shift of demand curve)

price below market clearing

shortage -eventually push price up -price of 2.75 will create a demand of 11.5 but a supply of only 9.1, either buyers will offer more or sellers realize they can offer higher prices -eventually rise

demand curve

shows quantity demanded at a given price

supply curve

shows quantity supplied at each price -curve slopes upward, at a higher price people are willing to supply more , higher price will bring higher profit

price above market clearing

surplus -eventually push price down --market price of 3.5$ creates a demand of 8.1 but a supply of 11.2, creating a surplus -producers are frustrated because nobody can find customers at this price, will eventually push it down

*if a market is not at equilibrium

the price will change and in response market participants will slide along the existing supply and demand curve until the market reaches equilibrium

change in input price

to produce outputs, you need inputs -an increase in the price of an input makes the production of the final good more costly for those who produce and sell it -less willing to supply the final good at any given price --> shift left -increase of input will shift curve to the left