Chap. 3 Flashcards
Demand
Schedule/Curve of consumer willingness to buy at different prices.
Price
Always Y Axis
Law of Demand
Negative/Inverse relationship between price & quantity demanded
Why is Demand Curve Downward?
D-I-S-CO
D (Disco)
Diminishing Marginal Utility (Less satisfaction, the more u buy)
I (Disco)
Income Effect (Lower Price, More income, People buy more)
S (Disco)
Substitution Effect (Lower price, better deal, buy more)
CO (Disco)
Common Sense (Observed behavior)
Change in Quantity Demanded/Supplied
Movement
Change in Demand/Supply
Shift
What Changes Demand
BUY-TASTY-P-I-E
BUY
Number of buyers
TASTY
Tastes and Preferences
P (BUY-TASTY-P-I-E)
Prices of Related Goods (Prices, Complementary, Substitute)
I (BUY-TASTY-P-I-E)
Income Changes (Income, Normal, Inferior)
E (BUY-TASTY-P-I-E)
Expectations (Optimistic, Pessimistic)
Network Effect
value “Increases” as more people use it
Congestion Effect
value “Decreases” as more people use it
Complementary Goods
one good “Can” be used together with another good
Substitute Goods
one good “Can Not” be used in place of another good
Normal Goods
varies “Directly” with money (More income, more goods purchases)
Inferior Goods
– varies “Indirectly” with money (More income, less goods purchases)
Slope on of Demand Curve
Determines the position of the demand curve
Supply
Schedule/Curve of the quantity of goods or services that producers are willing to sell at different prices
Law of Supply
Positive/Direct relationship between price and quantity supplied
Why Is The Supply Curve Upward
P-M-CO
P (P-M-CO)
Profit Incentive (Higher price, More profit, Greater output)
M (P-M-CO)
Marginal Cost Curve (Supply curve = Marginal Cost curve)
CO (P-M-CO)
Common Sense (Observed Behavior
What triggers a change in supply?
S-T-E-P R-T
S (S-T-E-P R-T)
Number of Sellers
T (S-T-E-P R-T)
Technology Changes
E (S-T-E-P R-T)
Expectations
P (S-T-E-P R-T)
Prices of Other Goods the Firm Could Produce (PO-C-S)
R (S-T-E-P R-T)
Resources Prices (Input Costs)
T (S-T-E-P R-T)
Taxes and Subsidies
PO-C-S Meaning (Prices of Other Goods the Firm Could Produce)
PO - Prices of other goods
C - Production Complements
S - Production Substitutes
Supply Curve Shifts to Right
Costs go up
Supply Curve Shifts to Left
Costs go down
Demand more than supply
Shortage
Supply more than demand
Surplus
Supply equals demand (best option)
Equilibrium price and quantity
