This is a Free Service provided by Why Fund Inc. (a 501 C3 NonProfit) We thank you for your donation!


(1. Click on the course Study Set you wish to learn.) (2. If you wish you can click on "Print" and print the test page.) (3. When you want to take a test...click on anyone of the tests for that Study Set.) (4. Click on "Check Answers" and it will score your test and correct your answers.) (5. You can take all the tests as many times as you choose until you get an "A"!) (6. Automated college courses created from lecture notes, class exams, text books, reading materials from many colleges and universities.)

New

Long-Term Learning

Learn efficiently and remember over time.

Start Long-Term Learning

Get personalized study reminders at intervals optimized for better retention.
Track your progress on this set by creating a folder
Or add to an existing folder

Add this set to a folder

  • theory of supply and demand

    shows how buyers and seller behave and how they interact with one another
    shows how supply and demand determine prices in market economy and how prices allocate economy's scare resources

    supply and demand

    behavior of people as they interact with one another in competitive markets

    market

    group of buyers and sellers of particular good or service
    buyers - determine demand for product
    sellers - determine supply of product

    competitive market

    describes market in which there are so many buyers and sellers that each has negligible impact on market price
    EX: each seller of ice cream has limited control over the price because other sellers are offering similar products, a seller has little reason to change less than going price and if he charges more buyers will make their purchases elsewhere, no single buyer of ice cream can inflence the price of ice cream because each buyer purchases only small amount

    perfectly competitive

    1. goods offered for sale are exactly the same
    2. buyers and sellers are so numerous that no single buyer or seller has any influence over the market price
    buyers and sellers must accept the price the market determines = price takers
    at market price buyers can buy all they want and sellers can sell all they want
    EX: wheat market - no single buyer or seller can influcene the price of wheat, each takes market price as given

    monopoly

    markets that have only one seller that sets the price
    EX: cable TV company

    quanitity demanded

    the amount of good that buyers are willing and able to purchase
    price of good determines quantity demanded

    law of demand

    the claim that other things being equal the quantity demanded of a good falls when the price of the good rises

    demand schedule

    a table that shows the relationship between price of good and quantity demanded

    demand curve

    line relating price and quantity demanded

    market demand

    sum of all individual demands for a particular good or service

    market demand curve

    shows how total quantity demanded of good varies as the price of the good varies, while all other favors that affect how much consumers want to buy are held constant

    shifts in demand curve

    1. income
    2. prices of related goods
    3. tastes
    4. expectations
    5. number of buyers
    6. prices of related goods

    income shift in demand curve

    lower income means you have less to spend
    if demand for good falls when income falls = normal good
    if demand for good rises when income falls (bus rides) = inferior good

    normal good

    if demand for good falls when income falls

    inferior good

    if demand for good rises when income falls (bus rides)

    prices of related goods shift in demand curve

    subsitituion = when fall in price of one good reduces demand for another good (sweaters and sweatshirts)
    complement = wen fall in price of one good raises demand for another good, pairs of good used together (peanut butter and jelly)

    tastes shift in demand curve

    ...

    expectations shift in demand curve

    expectations about future affect demand for a good or service toay

    number of buyers shift in demand curve

    ...

    substitues

    when fall in price of one good reduces demand for another good (sweaters and sweatshirts)

    complements

    when fall in price of one good raises demand for another good, pairs of good used together (peanut butter and jelly)

    quantity supplied

    amount of good that sellers are willing and able to sell
    at low prices, produce less or shut down and quantity supplied falls to zero

    law of supply

    the claim that other things being equal the quantity supplied of a good rises when the price of the good rises

    supply schedule

    table that shows the relationship between the price of a good and the quanitity supplied, holding constant everything else that influences how much producers of the good want to sell

    supply curve

    the curve relating price and quantity supplied
    slopes upward because, other things being equal, a higher price means a greater quantity supplied

    market supply

    sum of the supplies of all sellers
    shows how the total quantity supplied varies as the price of the good varies

    any change that raises quantity supplied at every price shifts curve to right
    EX: fall in price of sugar

    increase in supply

    if input prices rise substantially a firm might shut down
    supply of a good is __________ related to price of the inputs used to make the good

    negatively

    supply curve shifts

    1. input prices
    2. technology
    3. expectations
    4. number of sellers

    by reducing firms costs, the advance in technology _______ supply

    raises

    equilibirum

    a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

    equilibrium price

    the price that balances quantity supplied and quantity demadned
    market clearing price
    at this price everyone in market has been satisfied
    actions of buyers and sellers naturally move markets towards equilibrium of supply and demand

    at the equilibrium price, the quantity of the good that buyers are willing and able to buy ________ the quantity that sellers are willing and able to sell

    exactly equals

    surplus

    quantity supplied is greater than quantity demanded
    excess supply
    firms respond by cutting prices
    falling prices increase quantity demanded and decrease quantity supplied
    market price is above equilibrium price

    shortage

    market price is below equilibrium price
    demanders are unable to buy all they want at the going price
    excess demand
    quantity demanded is greater than quantity supplied
    sellers can respond by raisin their prices without losing sales
    price increases decreased quantity demanded and quantity supplied increase

    law of supply and demand

    the price of any good adjusts to bring the quantity supplied and quantity demanded for the good into balance

    competitive market

    many buyers and sellers whom have little or no influence on market price

    demand curve

    shows how the quantity of good demanded depends on price
    slopes downward

    law of demand

    as the price of good falls, quanitity demanded rises

    determinants of demand

    income
    price of substitutes and complements
    tastes
    expectations
    number of buyers

    supply curve

    shows how quantity of good supplied depends on price
    slopes upward

    law of supply

    as price of good rises, the quantity supplied rises

    supply curve determinants

    1. input prices
    2. technology
    3. expectations
    4. number of sellers

    market equilibirum

    determined by intersection of supply and demand
    the quantity demanded equals quantity supplied

    surplus

    market price above equilibirum price
    causes market price to fall

    shortage

    market price below equilibirum price
    causes market price to rise

    prices

    in market economy, signals that guide economic decisions and allocate scare resources

    equilibirum price

    determines how much of the good buyers choose to consume and how much sellers choose to produce

    Please allow access to your computer’s microphone to use Voice Recording.

    Having trouble? Click here for help.

    We can’t access your microphone!

    Click the icon above to update your browser permissions above and try again

    Example:

    Reload the page to try again!

    Reload

    Press Cmd-0 to reset your zoom

    Press Ctrl-0 to reset your zoom

    It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

    Please upgrade Flash or install Chrome
    to use Voice Recording.

    For more help, see our troubleshooting page.

    Your microphone is muted

    For help fixing this issue, see this FAQ.

    Star this term

    You can study starred terms together

    ! Voice Recording

    This is a Plus feature