Supply & Demand
The different quantities of a good that sellers are willing and able to sell (produce) at different prices.
Supply
Supply: New bun baking technology cuts production time in half
Technology, Increase
How does a tax on producers affect Supply?
Decrease
Examples: US Postal Service, Pacific Gas and Electric
One large firm (the firm is the market)
Unique product (no close substitutes)
High Barriers- Firms cannot enter the industry
“Price Makers”
Monopoly
When two or more people own a business together.
Partnership
Has an INVERSE relationship between price and quantity demanded.
Demand
Supply: Strange virus kills 20% of cows
Availability of Inputs, Decrease
How does a government subsidy affect Supply?
Increase
Examples: Corn, Strawberries, Milk, etc.
Many small firms
Identical products (perfect substitutes)
Low Barriers- Easy for firms to enter and exit the industry
Seller has no need to advertise
Firms are “Price Takers”
Perfect Competition
A business owned and run by one individual with no distinction between the business and the owner.
Most common type of business structure.
Sole Proprietorship
Two goods that are bought and used together.
Compliments
Demand: Price of tacos, a substitute, decreases
Price of Related Goods, Decrease
Maximum legal price a seller can charge for a product.
Price Ceiling
Examples: Cell Phones, Service Providers, Cars
A Few Large Producers (Less than 10)
Identical or Differentiated Products
High Barriers to Entry
Control Over Price (Price Maker)
Oligopoly
How corporations increase revenue and grow significantly.
Selling stock
For inferior goods: As income increases, demand ________
Supply: Price of hamburgers increase 30%
No Shift, slide up the line
Price Floors keep prices above equilibrium, causing Quantity Supplied to be higher than Quantity Demanded, also known as a ___________.
Surplus
Examples: Fast food, furniture, shoe stores
Relatively Large Number of Sellers
Differentiated Products
Some control over price
Low Barriers- easy for firms to enter
Monopolistic Competition
Large corporations headquartered in one country that have subsidiaries throughout the world. (ex: Wal-Mart, Coca Cola…)
Multinational
How does a change in price shift Supply and Demand?
It doesn't, a change in price slides along the line.
Demand: Hamburger restaurants announce that they will significantly increase prices NEXT month
Future Expectations, Increase
In order to keep prices low, a price ceiling is placed where?
Below equilibrium
Goods are NOT identical.
Firms seek to capture a piece of the market by making unique goods.
Since these products have substitutes, firms use NON-PRICE Competition.
Differentiated Products
Some or all partners have limited liabilities - each partner is not responsible for the other’s misconduct or negligence.
LLP – Limited Liability Partnership