1. C HAPTER 4: D EMAND AND S UPPLY

2. Markets – communication among buyers and sellers for the purpose of trading

3. Demand Definition – various amount of a good people are willing and able to buy at various prices Needs – must have Wants - optional Law of Demand – Price increases, Qd decreases Diminishing marginal utility – as you consume additional units of the same item you enjoy them less Demand Curve Market Demand – sum of the individual demand curves

4. Determinants of Demand – shift the demand (New Tip or Wet Pin) Willingness Tastes and Preferences Fads and Fashions Advertising Technology – new and replacement products Number and composition of buyers Population Demographics Prices of related goods Substitutes – Pa rises Qda falls, Demand for b rises Complements - Pa rises Qda falls, Demand for b falls Expectations Ability Income Normal – income rises, demand rises Inferior - income rises, demand falls Wealth

5. Demand vs. Quantity Demanded Demand is the whole curve Quantity demanded is one price and point on the curve

6. Supply Definition – various amounts of a good sellers are willing and able to sell at various prices Law of Supply – Price rises, Qs rises Example: Qoil rigs = 1021.35 + 21.82 Poil Supply Curve Market Supply – sum of the individual supply curves

7. Determinants of Supply Resource prices – costs of production Technology Taxes and subsidies Prices of related goods – other produced goods Substitutes - If the price of a substitute good rises you will produce more of that and less of the other good Diamond Brands – produces Toothpicks and Matches Green Giant – Corn, peas and green beans Jointly produced goods – Price of Beef rises, the Qs of Beef rise, the supply of leather rises Beef and leather Expectations Number of Sellers Production Restrictions Government

8. Changes in supply and quantity supplied Supply is the whole curve Quantity supplied is one price and point on the curve

9. Market equilibrium: Qs = Qd Where the market clears Transactions costs Costs of Information Search Convenience – hours, service, location and payment methods Time If transactions costs were zero all prices would be the same Non equilibrium situations – if left alone they will eliminate themselves Surplus: Qs>Qd Price floor – cheating Shortage: Qd> Qs Price ceiling - scalping Changes in Demand and Supply: Magic Box