Unit 3
| Word | Meaning |
|---|---|
| market | a group of buyers and sellers of a particular good or service |
| supply and demand | the behavior of people as they interact with one another in markets |
| market demand | the sum of all individual demands for a particular good or service |
| market supply | the sum of all individual supplies of a particular good or service |
| price taker | an individual or firm that must accept prevailing prices in a market |
| quantity demanded (Qd) | the amount of good or service that consumers are willing and able to buy at a given price, P Qd and P are negatively related |
| the law of demand | other things being equal, when the price of a good rises, the quantity demand of that good falls |
| normal good | when income increases, demand increases |
| inferior good | when income increases, demand decreases |
| substitute goods | if the price of one good increases, the demand for the other food increases |
| complement goods | if the price of one good increases, the demand for the other food decreases |
| demand schedule | table showing price vs quantity demanded for a good |
| demand curve | graph of the demand schedule (Qd on x-axis, price on y-axis) |
| change in quantity demanded | movement along the demand curve due to a change in the price of the good (does not move the demand curve) |
| change in demand | shift of the demand curve when anything other than the price of the good changes increase in demand: curve shifts right decrease in demand: curve shifts left |
| quantity supplied (Qs) | the quantity of goods and services firms (sellers, suppliers, producers) are willing and able to sell at any price, P Qs and P are positively related |
| the law of supply | other things being equal, the quantity supplied of a good rises when the price of the good rises |
| substitute goods in production | an increase in the price of one good will decrease the supply of the other (SUVs and trucks) |
| complement goods in production | an increase in the price of one good will increase the supply of the other (chicken breasts & chicken thighs) |
| supply schedule | table showing price vs quantity supplied |
| supply curve | graph of the supply schedule (Qs on x-axis, price on y-axis) |
| change in quantity supplied | movement along the supply curve due to a change in the price of the good (does not move the supply curve) |
| change in supply | shift of the supply curve due to a change in anything other than the price of the good increase in supply: curve shifts to the right decrease in supply: curve shifts to the left |
| market equilibrium | a situation in which there is no incentive for any individual to change what they're doing because they can't make themselves any better happens when Qd = Qs |
| equilibrium price/market clearing price | price at which Qd = Qs |
| equilibrium quantity/quantity traded | quantity at which Qd = Qs |
| surplus/excess supply | Qs > Qd when price above equilibrium price |
| shortage/excess demand | Qd > Qs when price below equilibrium price |
| law of supply and demand | the price of any good adjusts to bring the market back to equilibrium if the market is left to operate freely |
| comparative statics | what happens to equilibrium when curves shift |
| ambiguous change in price | when demand and supply both increase or decrease |
Demand of a Good Can Be Influenced by¶
- personal taste (can be changed by advertising)
- expectations: if you think the price will go up in the future, you'll demand more of the good today
- income
- normal good
- inferior good
- related goods
- substitute goods
- complement goods
- population: more consumers
- (no price here! price change quantity demanded, not the demand)
Supply of a Good Can Be Influenced by¶
- input prices (e.g. labour costs, raw materials)
- related goods
- substitute goods in production
- complement goods in production
- technology
- expectations: if prices are expected to increase in the future, firms will hold off producing today and supply today will decrease
- number of firms: more firms, more supply
A Perfectly Competitive Market¶
- all goods are identical (homogeneous)
- firms can freely enter or exit the market
- buyers & sellers are so numerous that no individual consumer or firm can affect the market price - each is a price taker
Last update:
October 4, 2021
Created: September 29, 2021
Created: September 29, 2021