Chapter 3 Flashcards
Competitive market
A market where many sellers and buyers, so no single buyer can influence price
Money price
Dollars given up in exchange for good or service
Relative price
Ratio of price of one good or service compared to another good or service price
If you demand something, then you…
- Want it
- Can afford t
- Plan to buy it
Wants
Unlimited desires or wishes for goods or serviices
Quantity demanded
Amount of good or service consumers plan to buy at a given time
Law of demand
Other things remaining same, higher price of good, smaller quantity demanded, lower price of good, greater quantity demanded
Reasons why a higher price reduces quantity demanded
Substitution effect
Income effect
Income effect
When price rises, other things remaining same the price rises relative to income
Substituton effect
When price of good rises, other things remaining the same, its opportunity cost rises. Other goods can be used in their place
Change in demand
Occurs when factors other than the price changes
6 main factors that bring changes in demand
- price of related goods
- expected future prices
- Income
- Expected future income or credit
- population
- preferences
Complement
Good used in conjunction with another good
Change in quantity demanded
When change in quantity demanded occurs, there is movement along the curve
When price of good changes but no other influence on buying plans change
Change in demand
Entire curve shifts
Price stays same but all other influences on buying plans change
If a firm supplies a good or service the firm…
- Has resources and technology to produce it
- Can profit from producing it
- Plans to produce and sell it
Quantity supplied
Amount producers plan to sell during given time period at a particular price
Supply
Refers to entire relationship between prce of a good and quantity supplied of it
Law of supply
Other things remaining the same, higher the price of a good, greater the quantity supplied, lower the price of a good the smaller is the quantity supplied
Quantity supplied
Refers to a point on a supply curve, quantity supplied at a price
Minimum supply price
A minimum supply price curve, a curve where someone is willing to sell
Lowest price is the marginal cost
6 main factors to change in supply
- Prices of resources and other inputs
- Prices of related goods produced
- Expected future prices
- Number of suppliers
- Technology
- State of nature
Change in quantity supplied
Movement along supply curve
If only price changes and all other factors stay same
Change in supply
Shift of supply curve
When all factors but price changes
Supply increases, curve shift right, when decreases shift left
Equilibrum quantity
Quantity bought and sold n equilibrium price
Equilibrum price
Price which quantity demanded equals quantity supplied
When price balances buying plans and selling plans
