Chapter 3 Flashcards
The Law of Demand
if the price of a good goes up quantity demand goes down, if the price of a good goes down the quantity demand goes up (inverse relationship between price and quantity demand)
Substitution effect
most things have a substitute so if a price goes up people look to a cheaper substitute
Demand Curve
y=price, x=quantity, downwards sloping line, (inverse relationship)
5 Determinants of Demand
Income, Consumer Preferences and Tastes, Market Size, Price of Related Goods, Expectations of Consumers
Income
Normal Goods and Inferior Good
Consumer Preferences and Tastes
Demand increase- coats and boots, halloween costumes when it starts getting cold
Demand decrease - silly bands, heelys, (once hot and now they are not)
Market Size
size of our market - 300 million buyers
market size in China - 1.2 million
Price of Related Goods
Substitutes and Compliments
Expectations of Consumers
Weather, future income, future prices, availability (Ex. Increase in covid tests when covid was going around)
Normal Goods
(shift right)- demand rises as income rises (technology, clothes, things I want)
Inferior Good
(shift left)- income decreases and demand decreases (Ex. cheap eats, generic brands)
The Law of Supply
price goes up the quantity supply goes up or if the price goes down the quantity supplied goes down (direct relationship -moving in the same direction)
5 Determinants of Supply
Technology & Productivity, Taxes/ Subsidies, Price of Inputs, Number of Firms, Expectations
Equilibrium Price
the point where the quantity demanded for a product equals the quantity supplied, resulting in a stable market price and quantity. (aka market clearing)
Surplus
excess quantity supplied, sellers will lower price to get rid of surplus
