Chapter 3 Flashcards
Define competitive market
has many buyers and sellers of the same good or service, none of whom can influence the price
define supply and demand model
model of how a competitive market behaves
what are the 5 key elements of a supply and demand model
The demand curve, the supply curve, factors that shift the demand and supply curve, the market equilibrium, changes in the market equilibrium
define demand schedule
a table showing how much of a good or service consumers will want to buy at different prices
define demand curve
shows the quantity demanded at various prices
define quantity demanded
quantity that buyers are willing to purchase at a particular price
define the law of demand
a higher price for a good leads people to demand a smaller quantity of that good.
a rightward shift of the demand curve means an __________ in demand
increase
a leftward shift of the demand curve means a ________ in demand
decrease
what is the different between movement along the vs shift in demand
Along: when price alone changes, there is a movement along a demand curve
Shift: people are buying more or less at every price
what are the 5 factors that shift the demand curve
- changes in the prices or related goods or services.
- Changes in income
- changes in taste
- changes in expectations
- changes in the number of consumers
two goods are compliments when
a decrease in the price of one good leads to an increase in the demand for the other (or vice versa).
the effect of changes in income on demand depend on the nature of the good in question. What are the two?
a normal good and an inferior good
A ________ good: demand increases when income increases
normal
An ____________ good: demand decreases when income increases.
inferior
changes in taste include
seasonal changes or fads have predictable effects on demand
If consumers have a choice about the timing of a purchase, they buy accordingly to __________
expectations
describe how demand is effected by changes in the number of consumers
as the population of an economy changes, the number of buyers of a particular good also changes, thereby changing its demand
define supply schedule
shows how much of a good or service would be supplied at different prices
define supply curve
shows the quantity supplied at various prices
define quantity supplied
quantity that producers are willing and able to sell at a particular price
a rightward shift of the supply curve means an _________ in supply
increase
a leftward shift of the supply curve means a ___________ in supply
decrease
what are the 5 things that shift supply
- changes in input price
- changes in the prices of related goods or services
- changes in technology
- changes in expectations
- changes in the number of producers
does supply increase or decrease when an increase in the price of an input makes the production more costly for sellers
supply decreases
does supply increase or decrease when A fall in the price of an input makes the production less costly for sellers.
supply increases
Inputs used in production have opportunity costs. Sellers will choose to use inputs whose profit is the ________.
highest
describe how change in technology changes supply
New, better technology enables producers to spend less on inputs, yet still produce the same amount of output.
Supply increases.
describe how changes in expectations shift supply
The expectation of a higher price for a good in the future decreases the current supply of the good—if sellers can store the good (and vice versa).
describe how changes in number or producers shift supply
As producers enter and exit the market, the overall supply changes.
Entry implies more sellers in the market, increasing supply.
Exit implies fewer sellers in the market, decreasing supply
when is the market in equilibrium? related to Qs, Qd
When Qs = Qd at a certain price. That is, the amount consumers would purchase at this price is matched exactly by the amount producers wish to sell.
describe a surplus
There is a surplus of a good when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level.
Surpluses do not last: sellers will reduce price so they can move goods off the shelves.
describe shortage
There is a shortage when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level.
Shortages do not last: sellers will realize that they can charge higher prices.
An increase in demand leads to a movement along the supply curve to a _________ equilibrium price and _________ equilibrium quantity
higher, higher
An increase in supply leads to a movement along the demand curve to a ________ equilibrium price and ________ equilibrium quantity.
lower, higher
If the decrease in demand is relatively larger than the increase in supply, the equilibrium price and quantity _____.
fall
If the increase in supply is large relative to the decrease in demand, the equilibrium quantity ______ as the equilibrium price _____
rises, falls
simultaneous shifts in demand and supply: demand increases and supply increases
quantity increases, but price change is ambiguous
simultaneous shifts in demand and supply: demand increases and supply decreases
price increases, but quantity change is ambiguous
simultaneous shifts in demand and supply: demand decreases and supply increases
prices decreases, but quantity change is ambiguous
simultaneous shifts in demand and supply: demand decreases and supply decreases
quantity decreases, but price change is ambiguous
give an example of substitutes
its an either or decision. If we usually by apples, but they are expensive we can buy pears because their cheaper. When substitute product becomes cheaper demand increases
surplus means excess ________
supply
shortage means excess _______
demand
market equilibrium is a situation where nobody has an …
incentive to do something different
when demand increases what happens to the equilibrium quantities
price increases and quantity increases
when demand decreases what happens to the equilibrium quantities
price decreases and quantity decreases
when supply increases what happens to the equilibrium quantities
price decreases and quantity increases
when supply decreases what happens to the equilibrium quantities
price increases and quantity decreases
