competitive market
a market with many buyers and sellers, each having an effect on price
perfectly competitive market
a market that meets the conditions of 1) many buyers and sellers, 2) all firms selling identical products, and 3) no barriers to new firms entering the market
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 decreases when the price of the good increases
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
quantity demanded in the market is
the sum of the quantities demanded by all buyers at each price
Demand Curve Shifters
number of buyers, income, prices of related goods, tastes, expectations
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
quantity supplied in the market is
the sum of the quantity supplied by all sellers at each price
supply curve shifters
input prices, technology, number of sellers, expectations
Equilibrium
the price at which quantity demanded meets quantity supplied
equilibrium price
the price that equates quantity supplied with quantity demanded
equilibrium quantity
the quantity supplied and the quantity demanded at the equilibrium price
surplus
when quantity supplied is greater than quantity demanded (excess supply)
shortage
when quantity demanded is greater than quantity supplied (excess demand)
3 steps to analyzing changes in equilibrium
1) decide whether event shifts S curve, D curve, or both
2) decide in which direction curve shifts
3) use supply-demand diagram to see how the shift changes equilibrium P and Q
change in supply
a SHIFT in the S curve occurs when a non-price determinant of supply changes (like technology or costs)
change in quantity supplied
a MOVEMENT along a fixed S curve occurs when price changes
change in demand
a SHIFT in the D curve occurs when a non-price determinant of demand changes (like income or # of buyers)
change in quantity demanded
a MOVEMENT along a fixed D curve occurs when price changes