PEco Module 3

• Factors that affect buyers’ demand for goods include changes in income, tastes, preferences, and the number of buyers.
• Factors that affect sellers’ supply of goods include changes in income, technology, and the number of sellers.
• Supply and demand determine the price of a good and the quantity sold.
• Facing a surplus, sellers try to increase sales by cutting price, causing quantity demanded to rise and quantity supplied to fall, reducing the surplus.
• Three steps to analyzing changes in equilibrium are: decide whether the event shifts the supply curve, the demand curve, or, in some cases, both curves, decide whether the curve shifts to the right or to the left, and use the supply-and-demand diagram.
• Facing a shortage, sellers raise the price, causing quantity demanded to fall and quantity supplied to rise, reducing the shortage.
• In the case of a shift in demand, the demand curve shifts because the price of gas affects demand for hybrids, the supply curve does not shift because the price of gas does not affect the cost of producing hybrids, and the shift causes an increase in price and quantity of hybrid cars.
• In the case of a shift in supply, the supply curve shifts because a new technology reduces the cost of producing hybrid cars, the demand curve does not shift because production technology is not one of the factors that affect demand, and the shift causes price to fall and quantity to rise.
• A change in supply occurs when a non-price determinant of supply changes, like technology or costs, and a movement along a fixed supply curve occurs when price changes.
• Changes in the factors that affect demand or supply affect the market price and quantity of a good.
• Markets allocate resources.
• To analyze how any event influences a market, we use the supply-and-demand diagram to examine how the event affects the equilibrium price and quantity.
• Decide in which direction the curve shifts.
• In market economies, prices are the signals that guide economic decisions and thereby allocate scarce resources.
• Compare the new equilibrium with the initial one.
• Decide whether the event shifts the supply curve or the demand curve (or both).
• A competitive market has many buyers and many sellers, each with a negligible impact on market price.
• A perfectly competitive market is one where all goods are exactly the same and buyers and sellers are so numerous that no one can affect the market price, “price takers”.
• Economists use the model of supply and demand to analyze competitive markets.
• The supply curve shows how the quantity of a good supplied depends on the price.
• When the market price is above the equilibrium price, there is a surplus of the good, which causes the market price to fall.
• Other determinants of supply include input prices, technology, expectations, and number of sellers.
• The demand curve shows how the quantity of a good demanded depends on the price.
• At the equilibrium price, quantity demanded = quantity supplied.
• If one of these factors changes, the d curve shifts.
• The law of supply states that as the price of a good rises, the quantity supplied rises; the s curve slopes upward.
• The intersection of the supply and demand curves determines the market equilibrium.
• If one of these factors changes, the s curve shifts.
• The behavior of buyers and sellers naturally drives markets toward their equilibrium.
• When the market price is below the equilibrium price, there is a shortage, which causes the market price to rise.
• The law of demand states that as the price of a good falls, the quantity demanded rises; the d curve slopes downward.
• In a market economy, prices adjust to balance supply and demand, and these equilibrium prices are the signals that guide economic decisions and thereby allocate scarce resources.
• Other determinants of demand include income, prices of substitutes and complements, tastes, expectations, and number of buyers.
• In competitive markets, there are many buyers and sellers, all are price takers.
• Quantity demanded is the amount of a good that buyers are willing and able to purchase.
• The law of demand states that when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.
• The quantity supplied (Qs) is represented as 12, 10, 8, 6, 4, 2, 0 for Starbucks and 30, 25, 20, 15, 0 for Peet’s.
• Equilibrium: Price has reached the level where quantity supplied equals quantity demanded.
• The supply curve for tax return preparation software does not shift when the price of the software falls.
• Surplus: quantity supplied is greater than quantity demanded.