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33 Cards in this Set
- Front
- Back
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WHY STUDY SUPPLY & DEMAND?
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WHAT IS A MARKET?
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Market = an institution that facilitatestransactions between buyers and sellers
a market does not have to be a place… |
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DEMAND SIDE
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Law of demand
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Why is there a negative relationship?
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3 ways to present the Lawof Demand/
3 ways to present the Lawof Supply |
Table
Graph Equation |
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Table: Demand schedule for Denim pants |
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Demand curve
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Equation
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Change in quantity demanded vs change indemand
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Change in demand
Increase in demand |
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Change in demand
Decrease in demand |
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The price is not the only factor that affectsdemand.
Other factors affecting demand (OFAD) Changes in these (other) factors cause ____ |
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OFAD: Income
Normal goods: Inferior goods: |
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OFAD: Prices of related goods
Substitutes Complement |
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OFAD: Consumer tastes and preferences
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OFAD: Consumer expectations
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OFAD: Number of consumers
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SUPPLY SIDE
Supply Law of Supply |
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Graph: Supply Curve
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Equation
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Change in quantity supplied vs change insupply
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The price is not the only factor that affectssupply.
Other factors affecting supply (OFAS): Changes in these other factors cause ____ |
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OFAS: resource/input prices
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OFAS: Prices of related goods in production
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OFAS: Technology
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Improved production techniques tend to shift the supplycurve the right
Reason: Lower production costs for each unit of output |
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OFAS: Producer expectation
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-Expectations about future output and input prices affectthe supply of a good today.
-If firms expect prices to rise in the future, then currentsupply might fall. |
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OFAS: Number of sellers
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More sellers in the market tend to raise the supply of agood
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MARKET EQUILIBRIUM
AND Three ways of presenting the concept |
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Price above P*
Price below P* |
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Algebraic derivation
Equations SOLUTIONS |
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Equilibrium and an increase in demand
Possible sources: |
Higher income (if good is normal)
Lower income (if good is inferior) Higher price of a substitute Lower price of a complement Increased preference for the good More consumers |
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Equilibrium and an increase in demand If supply is upward sloping, |
Higher equilibrium quantity
Higher equilibrium price |
