Chapter+4+The+Market+Forces+of+Supply+of+Demand+(Joon,+Scott,+and+Steven)

The Market Forces of Supply and Demand

**Key Terms**


 * 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
 * Quantity Demanded**: the amount of a good that buyers are willing and able to purchase
 * Law of Demand**: the claim that, other things 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
 * Normal Good**: a good for which, other things equal, an increase in income leads to an increase in demand
 * Inferior Good**: a good for which, other things equal, an increase in income leads to a decrease in demand
 * Substitutes**: two goods for which an increase in the price of one leads to an increase in the demand for the other
 * Complements**: two goods for which an increase in the price of one leads to a decrease in the demand for the other
 * Quantity Supplied**: the amount of a good that sellers are willing and able to sell
 * Law of Supply**: the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
 * Supply Schedule**: a table that shows the relationship between 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
 * Equilibrium**: 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 demanded
 * Equilibrium Quantity**: the quantity supplied and the quantity demanded at the equilibrium price
 * Surplus**: a situation in which quantity supplied is greater than quantity demanded
 * Shortage**: a situation in which quantity demanded is greater than quantity supplied
 * Law of Supply and Demand**: the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

**Main Points**

-The quantity demanded directly relates to the price. -For example if a pencil rose by two dollars, you would probably buy the other brand. -Becausees for the majority of the goods in the market, economists call it the law of demand.
 * Demand**

-This graph is called the demand curve. -P1 and P2 stands for Price 1 and Price 2 -Q1 and Q2 stands for Quantity 1 and Quantity 2

-There are multiple facotrs that can shift a demand curve. -Income, based on how much income an individual has, the more willing that person is to buy a certain good. -Price of related goods also affects how much an individual is willing to buy a certain good. If a certain good has substitutes that have a cheaper price, it will be less likely to be bought -Another is taste, if an individual likes the feeling of a pencil, he or she will buy more. -Expectations of an individual about if the price will rise or fall will influence the buyer. -Number of buyers greatly influences the demand curve. If there are a lot of buyers, the price will rise.

-**When the price of a certain good is high, there will be more quantity of the good. -When the price of a certain good is low, there will be less quantity of the good.
 * Supply

-This graph is called the supply curve. -Like the demand curve, there can be shifts to it as well. -Input prices may be high for a certain good and lower the quantity supplied. -Technology may be advanced and higher the quantity supplied. -Firms may have expectations if a certain good is going to be successful. -If the number of sellers are low, the supply in the market will be low as well.

By combining these two factors, you will come up with an equilibrium.
 * Equilibrium**

As you can see, both the supply and demand curves are put onto one graph. The point in the middle where the two lines intersect is called the equilibrium. It is said in economics that if an economy is right on the point of equilibrium it is being the most efficient. If it is under the the equilibrium, it would result in a shortage. However, if it is above the equilibrium it results in a surplus. With shifts that can effect both the demand and supply curve, a new equilibrium can be formed.

**Summary** -Economists use the graphs of supply and demand to anaylze competitive markets. -Demand directly relates to the price. In other words, the law of demand. -Five factors that can shift the demand curve are income, substitutes, expectation, taste, and number of buyers. -Supply also directly relates to the price. In other words, the law of supply. -Four factors that can shift the supply curve are input prices, technology, expectations, and the number of sellers. -When market price is below the equilibrium it results in a shortage. -When market price is above the equilibrium it results in a surplus.

**Study Questions** 1. Why is it that if the supply and demand curve is below the equilibrium it would result in a shortage? 2. What expectation would a firm have that would shift the supply curve down? 3. Why is it that at equilibrium, economists say that it is most efficient?

**Sources** http://tutor2u.net/economics/gcse/images/demand_supply_supply1.gif http://tutor2u.net/economics/content/diagrams/adas1.gif

Student Produced Resource:[| Quizlet Chapter 4]