AP Microeconomics Notes

Chapter 4: The Basics of Supply and Demand

  1. Introduction
    1. Basic Concepts
      1. Changes in demand or supply vs. changes in quantity demanded or supplied
      2. The role of competitive markets
        1. allows us to see how prices could function according to the design of the system
        2. price-takers
          1. firms or sellers
      3. ​​Market equilibrium
      4. Non-price determinants of supply and demand
      5. Simultaneous changes in demand and supply
      6. Government induced changes in the form of price ceilings and floors
  2. ​​Competitive Markets
    1. Principles
      1. Sellers or firms are price-takers
        1. any one firm or group of firms can’t significantly alter the terms or exchange or transaction terms (the price)
        2. must sell at the market price
          1. the price established by the interaction of all buyers and sellers in a market setting
    2. ​​​The Function of Prices
      1. Disciplinarians
        1. competitive pressures to keep prices down to the market norm of efficiency
      2. Signals
        1. the what, when, how much, where, and for whom goods and services should be produced
      3. Rationers
        1. high prices encourage economizing of relatively scarce resources and goods; low prices encourage more use of relatively abundant resources and goods
  3. ​​​Market Equilibrium- Demand and Supply
    1. Trial and Error
      1. Sellers initiate a price only to discover that a surplus or glut occurs and raise/lower it until equilibrium is achieved
    2. Characteristics of Equilibrium
      1. There is no tendency for change
      2. The amounts demanded equal the amounts supplied
      3. There is no surplus or shortage
    3. ​Demand and Amounts Demanded
      1. Amounts demanded
        1. refers to the amounts consumer are willing to buy of a particular good or service at varying prices of that good or service
        2. changes in it refer to changes along a demand curve as a result of a price change
      2. Demand
        1. ​changes in demand occur when determinants other than price change
    4. ​​Normal Goods
      1. As consumer income increases, demand for the normal goods increases
    5. ​​​Inferior Goods
      1. Consumption decreases as income increases
    6. Supply and Amounts Supplied
      1. Changes in amounts supplied
        1. result from a change in price
      2. Changes in supply result from changes in
        1. the number of sellers (providers, suppliers)
        2. costs of resources or production
        3. prices of substitute goods
        4. price expectations
        5. technology
        6. taxes/subsidies
    7. ​​Government Induced Changes
      1. Price ceiling
        1. prohibits prices to rise above a certain level
        2. decreases supply
        3. established under the equilibrium price
      2. Price floor
        1. established above the equilibrium or market price
        2. causes a surplus to develop

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How to cite this note (MLA)

Aboukhadijeh, Feross. "Chapter 4: The Basics of Supply and Demand" StudyNotes.org. Study Notes, LLC., 12 Oct. 2013. Web. 26 May. 2024. <https://www.apstudynotes.org/microeconomics/outlines/chapter-4-the-basics-of-supply-and/>.