Chapter 3: Demand, Supply, and Market Equilibrium Flashcards
Demand
Schedule or a 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
3.1
Demand schedule
A table that shows demand for a specific product, and the quantity demanded for each price
3.1
Law of demand
There is an inverse relationship between price and quantity demanded. As price goes up, demand goes down.
3.1
Diminishing marginal utility
In any specific time period, each buyer of a product will derive less satisfaction from each successive unit of the product consumed.
Ex: the second big Mac will yield less satisfaction to a consumer than the first.
3.1
Income effect
A lower price increases the purchasing power of a buyers money income, enabling the buyer to purchase more of the product than before
3.1
Substitution effect
At a lower price, buyers have the incentive to substitute what is now a less expensive product for other products that are now relatively more expensive
3.1
Demand curve
A curve that reflects the law of demand. Price goes on the vertical axis with the quantity demanded on the horizontal axis.
3.1
Determinants of demand
Factors that can and do affect purchases. They are assumed to be constant when a demand curve is drawn.
3.1
Normal goods
Products, whose demand varies directly with money income
3.1
Inferior goods
Goods whose demand varies inversely with money income. Ex: used clothes at thrift stores
3.1
Substitute good
One that can be used in place of another good
3.1
Complementary good
One that is used together with another good
Independent goods
Goods that are related to one another
The seven determinants of demand
- A favorable change in consumer tastes.
- An increase in the number of buyers.
- Rising incomes of the product is a normal good.
- Falling incomes at the product is an inferior good.
- An increase in the price of a substitute good
- A decrease in the price of a complementary good.
- A new consumer expectation that prices or income will be higher in the future.
3.1
Refer to table 3.1 for helpful info on demand
3.1
Change in demand
A shift of the demand curve to the right, or to the left. Occurs when a consumers state of mind about purchasing a product has been altered in response to a change in one or more of the determinants of demand.
3.1
Change in quantity demanded
A movement from one point to another point on a fixed demand curve
3.1
Supply
Schedule or curve showing 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 specific period
3.2
Supply schedule
A table that shows supply for a specific product and the quantity supplied for each price
3.2
Law of supply
A positive/direct relationship that prevails between price and quantity supplied. As price rises, quantity supplied rises. And as price decreases, quantity supplied decreases.
3.2
Supply curve
A curve that reflects the law of supply with an upward slope curve
3.2
The six determinants of supply
- Resource prices
- Technology
- Taxes and subsidiaries
- Prices of other goods
- Producer expectations
- The number of sellers in the market
3.2
Refer to table 3.2 for helpful info
3.2
Change in supply
A change in the schedule and a shift of the curve
Change in quantity supplied
A movement from one point to another on a fixed supply curve.
3.2
Equilibrium price
The price where the intentions of buyers and sellers match. Qs=Qd
3.3
Equilibrium quantity
The quantity at which the intentions of buyers and sellers match, so that Qs = Qd
3.3
Surplus
Excess supply that occurs when Qs > Qd.
3.3
Shortage
Qd > Qs, excess demand
Productive efficiency
The production of any particular good in the least costly way
3.3
Allocative efficiency
The particular mix of goods and services most highly valued by society.
3.3
Price ceiling
Sets the maximum legal price a seller may charge for a product or service. Any price above it is illegal
3.3
Refer to table 3.3 for helpful info
3.3
Price floor
A minimum price fixed by the government. Prices below it are illegal.
3.3
