| Question | Answer |
| 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 |
