chapter 3 Flashcards
Market
large numbers of independently acting buyers and seller come together to buy and sell standardized products
demand
A schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time
law of demand
The principle that, other things equal, an increase in a product’s price will reduce the quantity of it demanded, and conversely for a decrease in price
As price falls
quantity demanded rises
As price rises
quantity demanded falls
what kind of relationship is there between price and quantity demanded
negative or inverse (low of demand)
diminishing marginal utility
The principle that as a consumer increases the consumption of a good or service, the marginal utility (satisfaction) obtained from each additional unit of the good or service decreases.
Income effect
A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price.
substitution effect
suggest that buyers have an incentive to substitute a produce whose price has fallen for other products whose prices have remained the same
demand curve
its downward slop reflect the law of demand - people buy more of a product, service, or resource as its price falls
increase in demand- rightward shift
decrease in demand- leftward shift
Determinants of demand
- consumers’ tastes (preferences)
- the number of buyers in the markets
- consumers’ incomes
- The prices of related goods
- Consumer expectations
Number of buyers and how it affects demand
increase buyers: increase in demand
decrease buyers: decrease in demand
Normal goods
a good whose consumption increases when income increases and falls when income decreases
inferior good
a good or service whose consumption declines as income rises
charcoal grills consumption decreases because you can afford a gas grill
substitute good
one that can be used in place of another good
Haagen-dazs ice cream and ben and Jerry’s
complementary good
one that is used together with another good
lettuce and salad dressing
unrelated goods
independent goods
butter and golf balls
no effect on each other
Change in demand
shift of demand curve
Change in quantity demanded
movement from point a to b represent change in quantity demanded
equilibrium price
price where intentions of buyer and seller match
price at which quantity demanded and quantity supplied are equal
equilibrium quantity
quantity at which intentions of buyers and sellers match
quantity at which quantity demanded equals quantity supplied
surplus
The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price
shortage
The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.
rationing of prices
ability of the forces of supply and demand to establish a price at which selling and buying decisions are consistent, so there is no shortage or surplus
Ex:
seller’s supply curves show a _____relationship between price and quantity supplied
positive
market equilibrium generates -productive efficiency-
The production of a good in the least costly way
market equilibrium generates -allocative efficiency-
producing the right amount of the product relative to other profits
a decrease in demand _____ both equilibrium price and quantity
decreases
a decrease in supply ______equilibrium price
increases
a decrease in supply ______ equilibrium quantity
decreases
price ceiling
a legally established maximum price for a good or service; set at or below the equilibrium price, usually set below
ex: rent
may cause problems on supply side because owners of apartments might not profit as much off rent money that much
price floor
a legally established minimum price for good or service; normally set at at a price above the equilibrium
Demand effect on equilibrium price and quantity
a increase in demand increases equilibrium price and quantity; a decrease in demand decreases equilibrium price and quantity
supply
A schedule or curve that shows the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specified period of time.
law of supply
increase in price; increase supply
decrease in price; decrease quantity supplied
seller has greater incentive when price is increase, so they will supply more products
determinants of supply
- resource prices
- technology
- taxes
- prices of other goods
- producers expectations
6 number of sellers in the market
change in supply
shift of the supply curve; an increase in supply (right) a decrease in supply (left)
a change in quantity supplied
movement from a to b
cause of movement is a change in price of the specific product considered
