Chapter 4 - The Market Forces of Supply and Demand

4-1 The Market

Organized markets
Ex. Agricultural commodities dedicated to wheat and corn.
- Buyers know what price range they have to spend on buying goods, while sellers know the price range to sell products. Buyers and sellers ensure that a specific time and place is set up for them to meet up.
- Auctioneers maintain order and arrange all sales, while also finding a balanced price that'll satisfy buyers and sellers.
Unorganized markets
- Ex. Local ice cream market.
- Ice cream buyers don't meet up at certain times or places like an organized market. Ice cream sellers offer a variety of products in different locations and they make sure to display the price of an ice cream cone.
- Unorganized markets don't include auctioneers to call out a price.
- Buyers have the option to choose how many cones to buy at each store.

Ice cream sellers are aware of how similar their products are to those of other sellers, while buyers know they can choose from a plethora of sellers.
competitive market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price.
A market must ensure that the goods offered for sale are all identical, as well as the reassurance that no buyers or sellers have any influence over the market price.
Some competitive markets consist of one seller, others consist of multiple.
Price takers determine the price that buyers and sellers base their market on.
Monopolies are markets with one seller who sets a price.

A good's price determined the quantity demanded of a good.
Quantity demanded: the amount of a good that buyers are willing and able to purchase.
Law of demand: the claim that other things are 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.

The market demand determines the sum of each of the demands for a particular good or service.
A market demand curve depicts the total quantity demanded of a good varies as the good's price varies.

The demand curve can shift when the quantity being demanded at any given price alters.
- Ex. If the American Medical Association revealed that eating ice cream leads to a longer and healthier life, ice cream sales would have a higher demand. This surplus of purchasing larger quantities of ice cream would shift the demand curve for ice cream.
The demand curve shifts to the right when there's a change that raises the quantity that buyers wish to purchase at any given price (increase in demand).
The demand curve shifts to the left when any given change lowers the quantity that buyers wish to purchase (decrease in demand).
A person's income influences their demand for certain products.
When the demand for a good drop, the income drops and it is called a normal good.
An inferior good is when the demand for a good rises when the income drops.
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.

Quantity supplied: the amount of a good that sellers are willing and able to sell.
Law of supply: the claim that other things are equal, the quantity supplied of a good rise when the price of the good rises.
The supplied quantity of a good rises when the price of said good rises and vice versa.
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.

To get the market supply curve, we must take the sum of the individual supply curves horizontally.
The market supply curve shows how the total quantity supplied differs as the good's price changes, too.

The market supply curve shifts when one of the factors in holding the supply constant changes.
An increase in supply can be characterized as a shift in the supply curve to the right, while a shift to the left indicates a decrease in supply.

Equilibrium: a situation in which the market price has reached the level at which 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.
The denotation for equilibrium is when forces are at balance.
The equilibrium of a price is often called the market-clearing 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.
A surplus is sometimes described as an excess supply of a good.
A shortage is often referred to as excess demand.

Law of supply and demand: the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded of that good into balance.
The amount of products a producer wishes to sell is called the quantity supplied, while the supply itself is the position of the supply curve.
When there are an increase in demand, the equilibrium price increases.
A change in supply includes a shift in the supply curve.
A movement along a fixed supply curve is often called a change in the quantity supplied.

Job searching contributes to the supply of labor services.
The price of a good will determine how much of it is produced and who produces it.

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