Chapter4+JDEM

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==== Supply and demand is what determines (basically) everything in a market. But how are they measured, and what actually determines them? How do supply and demand manifest themselves in a competitive market- what IS a competitive market? all these are questions that can be answered below: :) ====

=__Main Ideas__=

➞ Equilibrium is always reached by the behavior of the buyers and sellers.
=// What is a Perfectly Competitive Market? //= To begin studying the fundamental concepts of economics, we take into consideration that we live in a "perfectly competitive market". In a perfectly competitive market, we assume that a) all the goods sold are homogeneous b) there are numerous buyers and sellers who cannot effect the market price c) the buyers and sellers are "price takers"

=// The Demand Curve //=

b) The quantity demanded is negatively related to price
Law of demand : the price and quantity demanded is expressed by an inverse relationshi



===Market demand is the sum of all individual demands for a particular good. To graph this, all the individual demands are added up "horizontally". The last graph (to the right) is the final graph for the market demand which is found by adding Q1 + Q2 and Q3+Q4.===



= **CHECKPOINT : The difference between "Shift in demand" and "Shift in Quantity Demanded" & "Shift in Supply" and "Shift in Quantity Supplied".** =

__1. Changes in Demand 2. Changes in Quantity Demanded__
a) the demand curve shifts to the left or right a) movement along the demand curve b) caused by several variables b) caused by the change in the prices

=// The Causes in Shifts of the Demand Curve //= The demand curve can be shifted by factors that can influence buying decisions.

a) If the good is a normal good, an increase in income increases the demand of the good
====example: If your allowance increased from $10 to $20 a month, you would go buy more of those delicious chocolate covered strawberries. Before, you could only purchase it once a month, now you can purchase it twice a month since you have more money. Chocolate covered strawberries are therefore, a normal good.====

b) If the good is an inferiro good, an increase in income decreases the demand of the good
====example: One day, you become a millionaire after winning lotto. Before, you would ride the public subway or bus home. Now that you have more money, you would pay for a personal driver to take you to wherever you want. Even if your income increased, your demand for public transportation decreased. Therefore, public transportation is an inferior good.====

**4. EXPECTATIONS**
====It is expected that eating twizzlers makes you smarter; then the price of twizzlers will soon shoot up in to the air due to the increased demand. Or, if it is expected that the price of cigarettes will increase to $100 per pack at exactly midnight tonight, the demand for cigarrettes before midnight will increase drastically.====

Depending on the competition effected by the number of buyers, the demand curve may shift both left or right.
=// The Supply Curve //=

b) The quantity of a good increase when the price of the good also increases


=// The Shifts in Supply Curves //=

The more sellers, the more supplied.
=// Market Equilibrium //= = the quantity demanded by consumers must be equal to the quantity supplied by produces. This is where everyone is satisfied. Also coined as the "market clearing price".

Equilibrium Quantity : the quantity where the supply and demand curves intersect


=// Looking at TWO Scenarios //=

1. If, Market Price > Equilibrium Price = Surplus
To combat surplus, producers (suppliers) will have to lower the price.

2. If Market Price < Equilibrium Price = Shortage
Sellers will raise the price of the good until equilibrium is reached

Supply and demand are principles that are central to the study of economics. When one of them is not in balance with the other, it can bring about consequences that are beneficial or destructive for all. Supply and demand are also 2 of the main contributing factors, when individuals/firms/governments have to make decisions regarding the allocation of their resources. Clearly, it is in accordance with the concept of 'scarcity'- it is actually the graphical representation of the principle, as it displays the supplies of a resource in contrast with the demands for that resources. The supply demand relationship is central to all market decisions.



a. suppliers b. demanders c. the government d. suppliers and demanders
 * 1. In a free market, who determines how much of a good will be sold and the price at which it is sold?**

a. Buyers determine supply and sellers determine demand. b. Buyers determine demand and sellers determine supply. c. Buyers and sellers as one group determine supply. d. Buyers and sellers as one group determine demand.
 * 2. Which of the following is not false :D?**

a. economic planners. b. producers who use resources. c. prices for resources. d. government regulation of scarce resources.
 * 3. Scare resources allocated by...?**

a. similar products b. numerous sellers c. market power d. numerous buyers
 * 4. Which of the following is NOT a characteristic of a perfectly competitive market?**

a. price makers. b. market pawns. c. price takers. d. powerless.
 * 5. What are Buyers and Sellers who have no influence in the market coined as?**

click here to check your answers

= Glossary =

☺ Market: a group of buyers and sellers of a good or service ☺ Competitive Market: a market in which there are many buyers and many sellers that they don't impact the market price ☺ Quantity Demanded: the amount of a good that buyers are able to buy ☺ Demand Curve: a graph that shows the relationship between the price and quantity demanded of a good or service ☺ 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 good leads to an increase in the demand for the other. ☺ complements: two goods for which an increase in the price of one good leads to a decrease in the demand for the other. ☺ law of demand: the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises. ☺ 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 price has reached the level where 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 supply and demand for that good into balance.