Chapter 3 Flashcards
Demand in Output Market
demand of a single household for a single product within a given period of time
Income
flow measure; how much you make over time
Wealth
stock measure; measured at a given point in time
Quantity Demanded
- amount of product that a household would buy in a given period if it could buy all it wanted at the current price
- change in price causes movement along demand curve NOT a shift in the demand curve
Demand Curve
graphical representation of the demand schedule of the relationship between price and quantity demanded; downward sloping curve
Law of Demand
- there is an inverse/ negative relationship between price and quantity demanded
- increase in price, decrease in quantity demanded
- decrease in price, increase in quantity demanded
Change in Demand
increase=rightward shift in demand curve
decrease=leftward shift in demand curve
Causes of Shifts in Demand
- income/wealth
- prices of related goods
- tastes and preferences
- expectations
Normal Goods
goods for which demand increases when income increases (ie. clothing, shoes, electronics)
Inferior Goods
goods for which demand decreases when income increases (ie. Ramen noodles, public transportation); different for different people
Substitutes
relationship between the two goods when the goods serve as replacements for one another (ie. Coke & Pepsi, Tea & Coffee); increase in the price of one good increases the demand of the other good
Complements
goods that go together; (ie. hot dogs and hot dog buns, pb and jelly); increase in the price of one good decreases the demand of the other good
Tastes and Preferences
how much of a particular good a household does buy (income and wealth determines how much a household is able to buy)
Expectations
future expectations effect demand today
Market Demand
taking a horizontal summation of individual demand curves; add up all individual households demands; population change effects this
