Chapter 3 - Demand, supply and price

Question 1

What is quantity demanded

Answer 1

Total amount that consumers desire to purchase at a certain price IN SOME TIME PERIOD

Question 2

Quantity bought differs from quantity demanded because it refers to _______

Answer 2

actual purchases

Question 3

flow variable + ex

Answer 3

so much per unit of time (ex. income, expenditure, etc.)

Question 4

stock variable + ex

Answer 4

meaning in a point in time (ex. money in bank account, etc.)

Question 5

Qt demanded flow or stock

Answer 5

flow

Question 6

Hypothesis about qt demanded and why

Answer 6

Price and qt demanded are negatively related. Reduction of price means desire can be satisfied more cheaply by buying more of it

Question 7

How price changes demand curve

Answer 7

Doesn’t change it -> only move on it

Question 8

How variables other than price change demand curve (2 possibilities)

Answer 8

increase in demand (moves rightward)

decrease in demand (moves leftward)

Question 9

4 things that can cause shift of demand curve

Answer 9

1) average household income
2) prices of other products
3) distribution of income or population
4) expectations about the future

Question 10

Why average household income influences demand curve

Answer 10

normal good and inferior goods

Question 11

normal good

Answer 11

qt demanded increases when income rises

Question 12

inferior good

Answer 12

qt demanded decreases when income rises

Question 13

Why distribution of income influences demand curve

Answer 13

changes for particular groups

Question 14

Why prices of other products influence demand curve

Answer 14

Substitutes and complements

Question 15

Substitutes def (in demand POV)

Answer 15

Good that can replace another one to satisfy a need

Question 16

Complements def (in demand POV)

Answer 16

Goods that need to be consumed together

Question 17

Why distribution of population influences demand curve

Answer 17

number of consumers

Question 18

Why expectations about the future influence demand curve

Answer 18

push us to buy more or before a change

Question 19

change in demand vs in qt demanded

Answer 19

in demand = curve shift

in qt demanded = mvmt along the curve or along a new curve

Question 20

qt supplied def

Answer 20

amount of product firms desire to sell IN SOME TIME PERIOD

Question 21

qt supplied vs actually sold

Answer 21

supplied = firm desires to sell

actually sold = sold

Question 22

qt supplied flow or stock

Answer 22

flow

Question 23

Hypothesis about relationship between price and qt supplied and why

Answer 23

higher price = higher qt supplied –> want to maximize profits

Question 24

change in supply vs in qt supplied

Answer 24

in supply = curve shift

in qt supplied = along the curve or along a new curve

Question 25

change in price effect on supply curve

Answer 25

stays the same. mvmt along it or new one

Question 26

change in variable other than price on supply curve

Answer 26

shift of the supply curve

Question 27

which variable changes will shift supply curve (5 ex.)

Answer 27

1) price of inputs 2) technology 3) Gvt taxes and subsidies 4) Prices of other products 5) number of suppliers

Question 28

2 possibles shift of supply curve

Answer 28

Rightward -> increase | Leftward -> decrease

Question 29

why price of inputs influences supply curve

Answer 29

affects profits

Question 30

why technology influences supply curve

Answer 30

can produce more (because production is more efficient)

Question 31

why Gvt taxes and subsidies influences supply curve

Answer 31

affects profits

Question 32

why Prices of other products influences supply curve

Answer 32

substitutes and complements

Question 33

Substitutes def (in supply POV)

Answer 33

Products that can be produced with the same resources. (Producers will produce the product with highest price (ex. potatoes) so influences supply of carrots for ex.)

Question 34

Complements def (in supply POV)

Answer 34

Products that are produced together (Producers will produce more of one (ex. oil) if its price goes up so associated product (ex. gas produced along) will have higher supply

Question 35

why number of suppliers influences supply curve

Answer 35

entering suppliers : increase in supply | exiting suppliers : decrease in supply

Question 36

Market def.

Answer 36

Any situation where buyers and sellers negotiate transaction of outputs

Question 37

How markets may differ

Answer 37

In degree of competition among various buyers and sellers

Question 38

Perfectly competitive market def

Answer 38

Buyers and sellers are price takers. Price won't change because of one person

Question 39

When can we apply demand-and-supply model to describe price determination

Answer 39

Three conditions : 1) Large number of consumers 2) Large number of producers (each one small relative to size of market) 3) Producers sell homogeneous versions of the product

Question 40

what is equilibrium price (2)

Answer 40

- price where every buyer finds seller and vice versa -> market clears - point that the market tends to reach if no regulation

Question 41

If we force exchange at price above equilibrium

Answer 41

excess supply -> market does not clear

Question 42

If we force exchange at price below equilibrium

Answer 42

excess demand -> market shortage (qt missing)

Question 43

Four laws of supply and demand briefly

Answer 43

What happens equilibrium price and qt in these 4 situations - fix supply. right or left shift of demand - fix demand. right or left shift of supply

Question 44

How to put demand and supply into graph (2)

Answer 44

1) equations | 2) tables

Question 45

Absolute price of product def

Answer 45

Amount of money spent to get one unit

Question 46

Relative price of product def

Answer 46

Price of one good in terms of another

Question 47

absolute price vs relative price : which one doesn't change with inflation

Answer 47

relative price

Question 48

demand and supply curves drawn in terms of relative prices or absolute prices ?

Answer 48

relative prices

Question 49

assumption when studying a relative price

Answer 49

prices of products other than the one we study are constant