CH3: Demand, Supply, & Prices Flashcards
What is demand in economics?
Demand is the quantity of a good or service that buyers are willing and able to purchase at various prices during a specific time period.
What are the main determinants of demand?
Price of the good, prices of related goods (substitutes and complements), income, consumer preferences, and size of the household.
What is the law of demand?
As the price of a good increases, the quantity demanded decreases, ceteris paribus.
What is the difference between a change in quantity demanded and a change in demand?
A change in quantity demanded is a movement along the same demand curve due to a price change, while a change in demand is a shift of the entire curve due to changes in other factors like income or preferences.
Define the demand curve.
A graphical representation showing the relationship between the price of a good and the quantity demanded, ceteris paribus. It usually slopes downward.
What is supply in economics?
Supply is the amount of a good or service a producer is willing and able to offer for sale at various prices over a period of time.
What are the main determinants of supply?
Price of the good, prices of alternative products, input costs, expected future prices, and technology.
What is the law of supply?
As the price of a good increases, the quantity supplied increases, ceteris paribus.
What is the difference between a change in quantity supplied and a change in supply?
A change in quantity supplied is a movement along the supply curve due to price change; a change in supply is a shift of the entire supply curve due to changes in input costs, technology, etc.
What is market equilibrium?
Market equilibrium occurs where the quantity demanded equals the quantity supplied. At this point, the market-clearing price is achieved, and there is no tendency for the price to change.
What happens if the price is above equilibrium?
There is a surplus; quantity supplied exceeds quantity demanded, creating pressure for the price to fall.
What happens if the price is below equilibrium?
There is a shortage; quantity demanded exceeds quantity supplied, creating pressure for the price to rise.
What is demand in economics?
Demand is the quantity of a good or service that buyers are willing and able to purchase at various prices during a specific time period.
What are the main determinants of demand?
Price of the good, prices of related goods (substitutes and complements), income, consumer preferences, and size of the household.
What is the law of demand?
As the price of a good increases, the quantity demanded decreases, ceteris paribus.
What is the difference between a change in quantity demanded and a change in demand?
A change in quantity demanded is a movement along the same demand curve due to a price change, while a change in demand is a shift of the entire curve due to changes in other factors like income or preferences.
Define the demand curve.
A graphical representation showing the relationship between the price of a good and the quantity demanded, ceteris paribus. It usually slopes downward.
What is supply in economics?
Supply is the amount of a good or service a producer is willing and able to offer for sale at various prices over a period of time.
What are the main determinants of supply?
Price of the good, prices of alternative products, input costs, expected future prices, and technology.
What is the law of supply?
As the price of a good increases, the quantity supplied increases, ceteris paribus.
What is the difference between a change in quantity supplied and a change in supply?
A change in quantity supplied is a movement along the supply curve due to price change; a change in supply is a shift of the entire supply curve due to changes in input costs, technology, etc.
What is market equilibrium?
Market equilibrium occurs where the quantity demanded equals the quantity supplied. At this point, the market-clearing price is achieved, and there is no tendency for the price to change.
What happens if the price is above equilibrium?
There is a surplus; quantity supplied exceeds quantity demanded, creating pressure for the price to fall.
What happens if the price is below equilibrium?
There is a shortage; quantity demanded exceeds quantity supplied, creating pressure for the price to rise.
What happens to the demand curve when demand increases or decreases?
An increase in demand shifts the demand curve to the right; a decrease shifts it to the left.
What happens to the supply curve when supply increases or decreases?
An increase in supply shifts the supply curve to the right; a decrease shifts it to the left.
What factors can cause the demand curve to shift?
Price of substitute goods, price of complementary goods, expected future prices, consumer income, expected future income, population size, and consumer preferences/taste.
What factors can cause the supply curve to shift?
Cost of production factors, prices of related goods, availability of substitutes and complements, expected future prices, number of suppliers, and changes in technology.
What is consumer surplus?
Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. It reflects extra benefit received by paying less than expected.
What is producer surplus?
Producer surplus is the difference between the market price and the minimum price at which producers are willing to supply. It shows extra gain to producers.
How are consumer and producer surplus shown at market equilibrium?
Consumer surplus is the triangle above the equilibrium price and below the demand curve (DP1E); producer surplus is the triangle below the equilibrium price and above the supply curve (SP1E).
