# Shared Flashcard Set

## Details

SECTION 2.2
Demand, Supply and Market Equilibrium
54
Economics
08/01/2017

Term
 Who determined demand?
Definition
Term
 Who determines supply?
Definition
 Sellers, firms
Term
 What is a Demand Schedule
Definition
 A table that shows the relationship between the PRICE of the good and the QUANTITY DEMANDED[image]
Term
 What is the Demand Curve
Definition
 the Demand Curve is the downward sloping line relating price to quantity demanded
Term
 What is the Law of Demand?
Definition
 The law of demand states that there is an inverse relationship between processing and quantity demanded. As price INCREASES, quantity demanded DECREASES
Term
 Function of Quantity Demanded
Definition
 If everything else is held constant (caters [aribus), the quantity demanded can be expresses as a gentian of its own price:Q = f(P)
Term
 Inverse Demand Function function
Definition
 P=F(Q)P being the dependent variable
Term
 Demand Curve Graph example and equation
Definition
 [image] Since Jim's demand curve is downwards sloping and straight, the equation is y = c -mxSusptitute PROCE for y and QUANTITY for x: P = c- mQ
Term
 What is the Market Demand?
Definition
 Refers to the sum of all individual demands for a particular good or service.Graphically, individual demand curves are summed horizontally to obtain the market demand curve because we want to add all quantities for a given price.
Term
 What is Ceteris Paribus?
Definition
 Means all variables other than the ones being studied are assumed to be constant. Literally, ceteris paribus means “other things being equal.”
Term
 Ceteris Paribus in the case of the demand curve
Definition
 The demand curve slopes downward because, ceteris paribus, lower prices imply a greater quantity demanded!
Term
 What are Determinants of Demand?
Definition
 When factors other than the price of the good changes
Term
 What is not a Determinant of Demand and why?
Definition
 Price of the good itself is NOT a determinant of demand. It only determines the QUANTITY demanded.If the price of the good itself changes, there will be a movement along the demand curve.
Term
 Which are the four Determinants of Demand?
Definition
 TIPS- TASTE and FASHION: If advertising of the good increased, there would be a shift of the demand curve to the right- INCOME: Generally, the more a person earns the more they will buy each good.- PRICE OF RELATED GOODS: If price of complements or substitutes chances, the demand curve will shift.-SIZE and NATURE of the POPULATION: The change would cause different sizes of shifts depending on the size of the population and its nature (ceteris paribus)
Term
 Changes in QUANTITY DEMANDED example
Definition
 [image]
Term
 Changes in Demand example
Definition
 [image]
Term
 If demand for a good is POSITIVELY related to INCOME it is called...
Definition
 NORMAL GOOD.- For more expensive goods e.g. wine, holidays etc.-> Demand increases when income increases (can afford)-> Demand decreases when income decreases (can no longer afford)
Term
 If demand for a good is INVERSELY related to INCOME it is called...
Definition
 INFERIOR GOOD.- Cheap and normally lesser quality goods-> Demand decreases when income increases (can afford more expensive goods)-> Demand increases when income decreases (can no longer afford more expensive products)
Term
 What are SUBSTITUTES?
Definition
 Two goods are substitutes if a rise in the price of one increases demand for the other e.g. Xbox and PlayStation.
Term
 Substitute effects on Demand Curve
Definition
 -> If price of a substitute increases (Xbox), demand for good increases as it is relatively more affordable (Play Station). -> If price of substitute decreases, demand for good decreases as the other is the cheaper option
Term
 Playstation and Xbox example of Substitute effect on Demand Curve
Definition
 [image]
Term
 What are COMPLEMENTS?
Definition
 Two goods complement if a rise in the price of one decreases demand for the other e.g. iPhones and iPhone cases
Term
 Complement effects on Demand Curve
Definition
 -> If price of complementary good increases (iPhones), demand for good decreases (iPhone cases)-> If price of complementary good decreases, demand for good increases
Term
 Example of effect of Complements on the Demand Curve
Definition
 [image]
Term
 What is Quantity Supplied?
Definition
 the amount of a good that sellers are WILLING and ABLE to sell at every price.
Term
 What is the Supply Schedule?
Definition
 A table that shows the relationship between the price of the good and the quantity supplied.[image]
Term
 What is the Supply Curve?
Definition
 The upward-sloping line relating price to quantity supplied. [image]
Term
 What does the 'Law of Supply' state?
Definition
 The law of supply states that there is a DIRECT (POSITIVE) RELATIONSHIP between price and quantity supplied.
Term
 Supply Curve Equation
Definition
 P = c + mQ- This will be an upward sloping straight line
Term
 How do we find the equation of the supply schedule?
Definition
 Find m by finding the slope = rise/runFind c by plugging in two corresponding values of P and Q (values from the Supply Schedule) then solve
Term
 What does Market Supply mean?
Definition
 Refers to the sum of all individual supplies for all sellers of a particular good or service
Term
 How is Market Supply summed?
Definition
 Graphically, individual supply curves are summed HORIZONTALLY to obtain the market curve.
Term
 What does a change in market price of the product cause
Definition
 Change in QUANTITY supplied.Movement ALONG the supply curve.
Term
 Change in Quantity Supplied example
Definition
 [image]
Term
 What are Determinants of Supply?
Definition
 CENT- COST OF PRODUCTION- ENVIRONMENT: e.g. weather, the sunnier the more ice creams- NUMBER OF SUPPLIERS: expect more supplies for an area with a larger population- TECHNOLOGY: improved technology reduces cost of production
Term
 Why do firms require a higher price to supply more?
Definition
 Because eventually they expect the average cost curve to SLOPE UPWARDS.E.g. in order to be induced to supply more, operations costs may increase. Therefore the firm would only supply more goods if the increased costs can be recovered. The only way to do this is by raising the price.
Term
 Effect on Supply due to change in Technology example
Definition
 [image]
Term
 What causes a change in SUPPLY?
Definition
 Caused by determinant other than price, causes a SHIFT in the supply curve, either to the left or right.
Term
 What does the Equilibrium Price mean?
Definition
 The price that balances supply and demand, and where the price of the two curves intersect.- Means market is BALANCED- There is no shortage or excess- No left overs: no one misses out and no one receives more
Term
 [image]Equilibrium price on table explanation
Definition
 There is no left overs. No one who is prepared to pay \$8 misses out. However, anyone who is willing to pay less or more does miss out.
Term
 What is the Equilibrium Quantity?
Definition
 The quantity that balances supply and demand. On a graph it is the quantity at which the supply and demand curves intersect.
Term
 Market Equilibrium example
Definition
 [image]
Term
 What can a company that is at the Market Equilibrium be called?
Definition
 A "well functioning market"
Term
 What does Disequilibrium mean?
Definition
 The market is not at equilibrium
Term
 Why may the market not be at equilibrium?
Definition
 1. Shortage of goods = Excess Demand (indicates price is too low)2. Surplus of Goods = Excess Supply (indicates price is too high)
Term
 What can inventory stock indicate?
Definition
 Good indicator of whether the firm is producing too much or not enough goods and also of the state of the economy.
Term
 What is surplus?
Definition
 When The price is higher than the equilibrium price which causes high supply but a low demand. Overproduction.
Term
 Reason why price may be too high?
Definition
 Due to lack of agriculture e.g. Government states that farmers mist get \$15 per kg of meat to protect the farmers, but demand decreases as customers will not want to pay that much. Farmers overproduce if prices are getting high.
Term
 Surplus example
Definition
 [image]
Term
 What is shortage?
Definition
 How far firms are short of satisfying demand (reasons why shops have sales )
Term
 Shortage example
Definition
 [image]
Term
 How to find the Surplus
Definition
 Quantity firm is willing to sell - Quantity customers are willing to buy
Term
 How to find the shortage
Definition
 Quantity customers are willing to buy - Quantity customers are willing to sell
Term
 How to find the Equilibrium price
Definition
 Demand curve = Supply curve (in terms of Q)Rearrange to find QPlug in Quantity to equation to find the Price of market equilibrium
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