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Chapter 4: The market forces of supply and demand (Supply and demand…
Chapter 4: The market forces of supply and demand
Markets and competition
Market: a group of buyers and sellers of a particular good or service
Competitive market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
Demand
Quantity demanded: the amount of a good that buyers are willing and able to purchase
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 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 ( inversely proportional)
Shifts in the demand curve
Income
Normal good: an increase in income leads to an increase in quantity demanded
Inferior good: an increase in income leads to a decrease in quantity demanded
Prices of related goods
Substitutes: a decrease in price of one good leads to a decrease in the demand for the other good
Complements: a decrease in price of one good leads to an increase in the demand for the other good
Tastes
Expectations: if people expect the price of a good will fall tomorrow, they will not buy that good today
Number of buyers
Price: represents a movement along the demand curve
Supply
Quantity supplied: the amount of a good that sellers are willing and able to sell
Law of supply: other things being equal, the quantity supplied of a good rises when the price of the good rises
Supply schedule: a
table
that shows the relationship the price of a good and the quantity supplied
Supply curve: a
graph
of the relationship between the price of a good and the quantity supplied
Shifts in supply curve
Input prices
Technology: advanced technology might raise the quantity supplied
Expectations: if the sellers expect that the price of the good sold will be increase in the future, so they would sell less now and put their inventory into storage
Number of sellers
Price represents the movement along the supply curve
Supply and demand together
Equilibrium price: the price that balances quantity supplied and quantity demanded
Equilibrium quantity: the quantity supplied and the quantity demanded at the equilibrium price
Equilibrium: where the supply and demand curves intersect
Surplus: a situation in which quantity supplied is greater than quantity demanded ( often when the price is high)
Shortage: a situation in which quantity demanded is greater than quantity supplied ( often when the price is low)
Law of supply and demand: the claim that the price of any good adjusts to bring the supply and demand for that good into balance
Changes in equilibrium
Due to a shift in demand
Due to a shift in supply
A change in both supply and demand ( must consider more than one effects every situations)