CH. 2 Demand, Supply, and Equilibrium Prices Flashcards
Demand
The functional relationship between the price of a good or service and the quantity demanded by consumers in a given time period, all else held constant.
Functional Relationship
A relationship between variables, where the value of one variable, determines the value of the other, the dependent variable.
(9) Nonprice Factors influencing Demand
- Tastes and Preferences 2. Income 3. Normal Goods 4. Inferior Goods 5. Prices of related Goods 6. Substitute Goods 7. Complimentary Goods 8. Future Expectations 9. Number of Consumers
Normal Good
A good for which consumers will have a greater demand as their incomes increase, all else held constant, and a smaller demand if their incomes decrease.
Inferior Goods
A good for which consumers will have a smaller demand as their incomes increase, and greater demand if their incomes decrease, all factors held constant.
Substitute Goods
Two goods, X and Y, are substitutes if an increase in the price of a good Y causes consumers to increase their demand for good X or if a decrease in the price of good Y causes consumers to decrease their demand for good X. EX. Bottled Water.
Complementary goods
Two goods X and Y are complementary if an increase in the price of good Y cause consumers to decrease their for good X or if a decrease in good Y causes consumers to increase their demand for good X. EX. Peanut butter and Jelly
Individual Demand Function
The function that shows the variables that influence the quantity demanded of a particular product by an individual consumer.
Market Demand Function
The function that shows that variables that influence the quantity demanded of a particular product by all consumers in the market and is affected by the number of consumers in the market.
Demand Curve
The graphical relationship between the price of a good and the quantity consumers demand, with all other factors held constant.
Demand Shifters
The variables in a demand function that are held constant when defining a given demand curve, but that would shift the demand curve if their values changed.
Negative Relationship (Inverse)
A relationship between two variables, where an increase in the value of one variable causes a decrease in the value of the other variable. (downward sloping line)
Change in Quantity Demanded
The change in quantity consumers purchase when the price of the good changes. Movement along the demand curve.
Change in Demand
The change in quantity purchased when one or more of the demand shifters change. Shift in the entire demand curve.
Horizontal Summation of indv. demand Curves
the process deriving a market demand curve by adding the quantity demanded by each individual at every price to determine the market demend at every price.
Linear Demand Function
Demand Function graphed as a straight- line demand curve in which all th terms are either added or subtracted and no terms have exponents other than 1.
Supply
The functional relationship between the price of a good or service and the quantity supplied by producers in a given time period. All esle held constant.
(5) Nonprice factors unfluencing supply
- State of technololgy
- Input prices
- Prices of Goods related in Production
- Future Expectations
- Number of Producers
Individual Supply Function
The function that shows the variables that influence the quantity supplied of a particular product by an individual producer.
Market Supply Function
The function that shows the variables that influence the quantity supplied of a particular product by all producers in the market and that is thus affected by the number of producers in the market.
Supply Curve
The graphical relationship between the prive of a good and the quantity supplied, with all other factors held constant.
Supply Shifters
The variables in a supply curve that are held constant, if chsnged would cause the curve to shift.
Positive Relationship (Direct)
A relationship between two variables, where an increase in the value of one variable cause an increase in the value of another variable. Upward sloping line.
Change in Quantity Supplied
The change in the amount of a good supplied when the price of the good changes. Pictured as movement along the supply curve.
Change in Supply
The change in the amount of a good supplied when one or more of the supply shifters change. PIctured as a shift in the entire supply curve.
Equilibrium Price
The price when the quantity demanded by consumers equals the quantity supplied by producers.
Equilibrium Price
The quantity when the amount of output that the consumers demand is equal to the amount of output that the producers supply.
