FMSC 290 Chapter Notes - Chapter 4: Fudge, Economic Equilibrium, Demand Curve
1 May 2018
School
Department
Course
Professor
Reading chapter 4: The Market forces of supply and demand
• Supply and demand
o The words most used by economist
o They determine the quantity of each good produces and the price at which it is
sold
o Refers to the behavior of people as they interact with one another in competitive
markets
• Market: a group of buyers and sellers of a particular good or service
o Most of the time they are not super organized
• Competitive market: a market in which there are many buyers and many sellers so that
each has a negligible impact on the market price
o No single seller of ice-cream can influence the price of ice cream because each
buyer purchases only a small amount
• In this chapter, we assume markets are perfectly competitive
• To reach this highest form of competition, a market must have two characteristics:
o The goods offered for sale are all exactly the same
o The buyers and sellers are so numerous that no single buyer or seller has any
influence over 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 thing 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
• market demand: the sum of all the individual demands for a particular good or service
• normal good: a good for which, other things being equal, an increase in income leads to
an increase in demand
• inferior good: a good for which, other things being 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
o ice cream and hot fudge sails go together
• quantity supplied: the amount of a good that sellers are willing and able to sell
• Law of supply: the claim that, 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 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
o slopes upward because higher price means a greater quantity supplied
• Things that affect supply
o Technology: increases supply
find more resources at oneclass.com
find more resources at oneclass.com
