ch 4

perfectly competitive market
- buyers and sellers so numerous that no one person can affect market price
- all goods are exactly the same quality
law of demand

quantity demanded of a good falls when the price of a good rises
demand curve has a ____ correlation to price

negative
demand curve shifters
- # of buyers
- income
- price of substitutes (pizza and burgers)
- price of complements (pb and j)
- tastes
- expectations
- (NEVER A CHANGE IN PRICE THAT WOULD BE A MOVEMENT ALONG THE CURVE)
normal good
- positively related to income
- make more money you buy more
inferior good
- negatively related to income
- you make more you buy less
- (bus rides)
law of supply

claim that quantity supplied of a good rises when the price of the good rises
Supply is ___ correlated to price

positively
SUpply curve shifters
- change in input prices (raw materials, wages)
- better technology
- # of sellers
- expectations
surplus

when Qs is greater than Qd

price falls until eqm is reached
shortage

when Qd is greater than Qs

prices continue to rise until they reach eqm
Facing shortages sellers raise the price causing

Qd to fall and Qs to rise which reduces the shortage
facing a surplus sellers try to increase sales by cutting prices this causes

Qd to rise and Qs to fall reducing the surplus
if both the supply and demand shift quantity will go up or down but the effect on price

will be ambiguous

Author

jillmray

67973

Card Set

ch 4

Description

market forces of supply and demand

Updated

2011-02-22T00:23:51Z

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