Chapter 2 part 1 from class: demand and supply Flashcards
difference between quantity demanded and demand?
quantity demanded corresponds to a single price
demand is the entire demand curve
normal good
bought by people with higher income
inferior good
bough less with higher income
what can shift the demand curves
expectations
income
tastes
etc
basically, anything other than price that affects consumers will shift the demand curve
explain supply curve
increase in price creates increased quantity supplied
anything other change of price will change the supply
what will an increase in cost of production to the supply curve? why?
the supply curve will curve to the left
since its more expensive to produce, you’re going to want to increase price for same quantity supplied
surplus
when quantity supplied is greater than quantity demanded
what do sellers do in a surplus?
decrease the price to get more people to buy until it reaches an equilibrium
shortage
when quantity demanded is greater than quantity supplied
what is the formula for price elasticity of demand
point elasticity
(Delta Q / Delta P) * (P/ Q)
(Delta Q / Delta P) is the slope of the demand function
when there is only one point given
you’re either going to be given the slope or ways to find it
price elasticity of demand
measures how much Qd responds to a change in P
arc elasticity
using a midpoint
when there is two points given
you find the midpoint
(Delta Q / Delta P) * ( Average P/ Average Q)
q demanded
any good is the amount of the good that buyers are willing and able to purchase at a given price
what does the demand curve show?
how price affects quantity demanded, other things being equal
how is demand for a normal good positively related to income?
Increase in income causes increase in quantity demanded at each price
this means a shift to the right to the entire demand curve
how is demand for an inferior good is negatively related to income)
An increase in income shifts D curves for inferior goods to the left
substitutes
competitors that will clash and can replace each other
Price of one will affect the whole demand curve of the other
an increase in the price of one causes an increase in demand for the other
complements
they go well together
Price of one will affect the whole demand curve of the other
an increase in the price of one causes a fall in demand for the other
what does a change in price of a product do?
causes a movement along the D curve
what are the variables that will shift demand curve?
the amount of buyers
income
price of related goods
tastes
expectations
quantity supplied
the amount that sellers are willing and able to sell at a given price
what are supply curve shifters
input prices (cost of production)
technology advancements
amount of sellers
expectations
etc
what does an increase of sellers do to supply curve
sellers increases the quantity supplied at each price
shifts S curve to the right
what does a cost saving tech advancement to to supply curve
shifts S curve to the right
equilibrium
the level where quantity supplied equals quantity demanded
surplus
when quantity supplied is greater than quantity demanded
what do sellers do when facing surplus in free market?
sellers try to increase sales by cutting price
shortage
when quantity demanded is greater than quantity supplied
what do sellers do when facing shortage?
sellers raise the price
change in supply?
a shift in the S curve occurs when a non-price determinant of supply changes (like technology or costs)
change in quantity supplied
a movement along a fixed S curve occurs when P changes
change in demand
a shift in the D curve occurs when a non-price determinant of demand changes (like income or # of buyers)
change in quantity demanded
a movement along a fixed D curve occurs when P changes
