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Market
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Buyers as a group
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QuestionAnswer
Market A group of buyers and sellers of a particular good or service
Buyers as a group Determine the demand for the product
Sellers as a group Determine the supply of the product
Competitive Market characteristics - Many buyers and many sellers - Each have tiny impact on market price
Perfectly Competitive Market characteristics - All goods are exactly the same(commodities) - So many buyers and sellers that no one can impact the market price - called “price takers”
Quantity demanded Amount of a good that buyers are willing and able to purchase
Law of Demand - When the price of a good rises, the quantity demanded of the good falls - When the price falls, the quantity demanded rises - assuming “All else equal”
Demand Schedule A table that shows the relationship between the price of a good and the quantity demanded
Demand Curve A graph that shows the relationship between the price of a good and the quantity demanded
Market Demand Sum of all individual demands for a good - sum of the individual demand curves horizontally
How to find Market Price Add individual demands(quantity demands)together
“Other things” Things outside of the price that may impact the demand
Changes in the “other things” causes The demand curve to shift
Shift to the right means quantity demanded will be higher
Shifts to the left means Quantity Demanded will be lower
Demand Curve Shifters - Number of buyers - Income - Prices of related goods (substitutes&complements) - Tastes - Expectations
Demand Curve Sliders only impact The quantity demanded
Normal Goods Luxury watches Size of home gas
An increase in income leads to an increase in demand for (all things equal) Normal Goods
Inferior Goods Spam Ramen noodles used cars
An increase in income leads to a decrease in demand for (all things equal) Inferior goods
Substitutes Chicken sandwiches and Hamburgers Coke and Pepsi
Two goods are substitutes if An increase in the price of one leads to an increase in the demand for the other
Complements Eggs and Bacon Bagels and Cream Cheese
Two goods are complements if An increase in the price of one leads to a decrease in the demand for the other
Tastes Ad Campaigns Diet fads Influencers
Anything that causes a shift in tastes towards a good will increase demand for that good and shift the D curve to the right Tastes
Predictions about the future that impact demand Expectations
Variables that move in the same direction Positive Correlation
Variables that move in opposite directions Negative Correlation
Slope Formula y = y1 - y2 x1 - x2
Why is slope used To show how much one variable responds to another
Omitted Variable Relevant variables that are left out causing a deceptive graph
Reverse causality Assuming a variable is causing something based off the date alone Ex: More police in a city with more crime ≠ Police cause more crime
Equilibrium Market Price has reached the level at which the quantity supply and quantity demand are even
Equilibrium Price Price of quantity supply and quantity demand are equal
Equilibrium Quantity Quantity at which the quantity supply and quantity demand intersect
Surplus Quantity Supply is greater than quantity demand
Price change Movement along supply and demand curves
How to reach equilibrium during a Surplus Prices dropped until equilibrium
Shortage Quantity Demand is greater than Quantity supply
how to reach equilibrium during shortage prices increase until equilibrium
1st step to to analyzing changes in equilibrium Decide whether or not the events shift the supply curve or the demand curve or both
2nd step to to analyzing changes in equilibrium Decide whether or not the shift is to the right or left
3rd step to to analyzing changes in equilibrium Use the supply and demand diagram to compare the initial equilibrium to the new one
Created by: koreanfish
 

 



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