market
- group of buyers and sellers of a particular good
- buyers: demand for product (consume)
- sellers: supply product
- can take many forms
forces at work in markets
- supply and demand determine equilibrium price
who will produce (consume) what and how much (equilibrium quantity)
competitive market assumptions
- many buyers and sellers
- uniform good
- perfect information
- transactions occur easily
demand curve
- negative relationship between price and quantity demanded
quantity demanded
amount of a good buyers are willing and able to purchase at a given price
movement along the demand curve
- change in price
- lower price means a desire can be satisfied more cheaply
shift in demand curve
- change in variable other than price
- consumer’s tastes
- consumer’s income
- price of other (related) goods
- consumer’s expectations
- population
- significant changes in weather
supply curve
- positive relationship between price and quantity supplied (sold)
quantity supplied
amount of a good that sellers are willing and able to sell
movement along the supply curve
- change in price
- as price increases, the quantity that can be supplied increases
shift in supply curve
- change in a variable that isnt price
- input prices (ages, price of new raw materials)
- technology
- government taxes/subsidies
- prices of other products
- significant changes in weather
- number of suppliers
equilibrium
- when the market price has reqched the level at which quantity supplied equals quantity demanded
normal goods
increase in income will result in an increase in demand
inferior good
increase in income will result in a decrease in demand
complement goods
2 goods for which an increase in the price of one leads to a decrease in the demand of the other
substitute goods
2 goods for which an increase in the price of one leads to an increase in the demand for the other
