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Terms in this set (32)
Supply and demand
Are the forces that make market economies work. They determine the quantity of each good produced and the price at which it is sold.
Market
A group of buyers and sellers of a particular good or service
What is a market
The buyers as a group determine the demand for the product, and the sellers as a group determine the supply of the product
Competitive market
A market in which there are many buyers and many sellers so that each has a negligible impact on the market price.
Perfectly competitive
To reach this highest form of competition, a market must have 2 characteristics: 1. The goods offered for sale are all exactly the same. 2. The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.
Quantity demanded
Amount of a good that buyers are willing and able to purchase
Law of demand
The quantity DEMANDED of a good falls when the when the price of a good rises, and vice versa, provided all other factors that affect buyers decisions are unchanged.
Demand
Full description of how the quantity demanded changes as the price of the commodity changes
Quantity demanded of a consumer good depends on:
- The price of ice cream.
- the prices of related goods
- consumers incomes
- consumers tastes
- consumers expectations about future prices and incomes
- number of buyers, etc
The law of demand says
That the quantity demanded of a good is inversely (negatively) related to its price, provided all other factors are unchanged
Demand schedule
Table that shows the relationship between the price of a good and the quantity demanded
Demand curve
A graph of the relationship between the price of a good and the quantity demanded. Price is on the vertical, and quantity demanded on the horizontal.
Market demand
The sum of all the individual demands for a particular good or service .
Shifts in the market demand curve
Are caused by changes in :
- consumer income
- price of related goods
- tastes
- expectations, say about future prices and prospects
- number of buyers
Shifts in the demand curve
Consumer
income:
-as income INCREASES the demand for a NORMAL good will INCREASE
-as income INCREASES the demand for an INFERIOR good will DECREASE
Prices of related goods:
- when a FALL in the price of one good REDUCES the demand for ANOTHER good, the two goods are called Substitutes.
- when a FALL in the price of one good INCREASES the demand for ANOTHER good, the two goods are called Complements.
Substitutes
when a FALL in the price of one good REDUCES the demand for ANOTHER good
Complements
when a FALL in the price of one good INCREASES the demand for ANOTHER good,
Law of demand explanations
- substitution effect
- income effect
Substitution effect
When the price of a good decreases, consumers substitute that good instead of other competing (substitute) goods
Lower prices = higher income
A fall in prices is equivalent to an increase in income
Income effect
A decrease in the price of a commodity is essentially equivalent to an increase in consumers income.
Supply
Full description of how the quantity supplied of a commodity responds to changes in its price
Quantity supplied
Is the amount of a good that sellers are willing and able to sell
The law of supply
The QUANTITY supplied of a good rises when the price of the good rises, as long as all other factors that affect suppliers decisions are unchanged
Shifts in the supply curve
Caused by changes in:
- input prices
- technology
- number of sellers (short run)
The market supply will shift if:
- raw materials or labor becomes cheaper
- technology becomes more efficient
- number of sellers increases
Equilibrium
We assume that the price will automatically reach a level at which the quantity demanded equals the quantity supplied
When markets are not in equilibrium
You have a surplus or a shortage
Surplus
- when price EXCEEDS equilibrium price, the. Quantity supplied
is GREATER than quantity demanded
- there is excess supply or a surplus
- suppliers will lower the price to increase sales, thereby moving toward equilibrium
Shortage
When price is LESS than equilibrium price, then quantity demanded EXCEEDS the quantity supplied
- there is excess demand/shortage
- suppliers will raise the price due to too many buyers chasing to few goods, thereby moving toward
equilibrium
Normal good
Increase in income will result in an increase for the demand of the good
Inferior good
Decrease in income increases the demand for the good
Substitutes
2 goods. If a decrease in the price of one good decreases the demand for another good.
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Verified questions
ECONOMICS
Given the following regression equation, Ŷ = 7 - .5X, and that the coefficient of determination is 0.81, answer the question. An increase of 1 unit in the independent variable will result in what amount of an increase or decrease in the dependent variable?
Verified answer
ECONOMICS
Consider the following limit order book for a share of stock. The last trade in the stock occurred at a price of $50.$ $$ \begin{matrix} \text{Limit Buy Orders} & \text{ } & \text{Limit Sell Orders}\\ \text{Price} & \text{Shares} & \text{Price} & \text{Shares}\\ \text{49.75} & \text{500} & \text{50.25} & \text{100}\\ \text{49.50} & \text{800} & \text{51.50} & \text{100}\\ \text{49.25} & \text{500} & \text{54.75} & \text{300}\\ \text{49.00} & \text{200} & \text{58.25} & \text{100}\\ \text{48.50} & \text{600} & \text{ } & \text{ }\\ \end{matrix} $$ $ At what price would the next market buy order be filled?
Verified answer
ECONOMICS
The National Aeronautics and Space Administration (NASA) has experienced two disasters. The Challenger exploded over the Atlantic Ocean in 1986, and the Columbia disintegrated on reentry over East Texas in 2003. Based on the first 113 missions, and assuming failures occur at the same rate, consider the next 23 missions. What is the probability of exactly two failures? What is the probability of no failures?
Verified answer
ECONOMICS
The state of Maine has a very active lobster industry, which harvests lobsters during the summer months. During the rest of the year, lobsters can be obtained by restaurants from producers in other parts of the world, but at a much higher price. Maine is also full of "lobster shacks," roadside restaurants serving lobster dishes that are open only during the summer. Supposing that the market demand for lobster dishes remains the same throughout the year, explain why it is optimal for lobster shacks to operate only during the summer.
Verified answer
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When the decrease in the price of one good cause the demand for another good to decrease the goods are *?
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2. Complements are goods that are used jointly. | |
a. An increase in the price of a good will decrease demand for its complement while a decrease in the price of a good will increase demand for its complement. | |
3. Income is another factor that can affect demand. |