Chapter 3 - Demand, Supply and Price Flashcards
Differentiate quantity demanded and quantity bought
QD: desired quantity
QB: actual purchases
Demand can be influenced by (6)
Products' own price Consumers' income Prices of other products Tastes Population Expectations about the future
The price of a product and the QD are _ related
Negatively
_ the price = higher the QD
higher the price = _ the QD
Lower, lower
What will shift the demand curve?
A change in variables other than price
What does a rightward shift indicate? Leftward?
Increase in demand
Decrease in demand
Differentiate change in demand vs change in QD
Change in demand: shift of entire curve
Change in QD: moving along the curve
Changes in the price of product imply moves _ the curve
Along
Change in variables other than the price of product _ the whole curve
Shifts
If demand shifts outwards, quantity increases and price _
Stays the same
Differentiate normal and inferior goods using income
When income rises,
Normal: QD increases, DC shifts right
Inferior: QD decreases, DC shifts left
Differentiate complementary and substitute goods
Complementary: consumed together, price of one increase and demand of the other decreases
Substitute: consumed in lieu of each other, price of one increases and demand of the other increases
Give examples of complementary and substitute
Complementary: milk and cereal
Substitute: coffee and tea
If milk price increases, QD _ but DC (does/doesn’t shift), meaning you move _ the curve
Decreases, doesn’t, along
For cereal, if milk price increases, the DC for cereal _ and the curve shifts _
Decreases, left
If tea price decreases, _ consumption of tea, meaning you move _ the curve
Increase, along
For coffee, if tea price decreases, DC for coffee _ and the curve shifts _
Decreases, left
What other 3 factors can shift demand?
Population, tastes, expectations about the future
Demand is _ and supply is _ _
Negative, positive
What is quantity supplied?
Amount desired to sell
The price of product and quantity supplied are _ related. Why?
Positively
Because producers are interested in profits
What will shift the supply curve?
A change in variables other than price
Differentiate change in supply vs change in QS
Change in demand: shift of entire curve
Change in QD: moving along the curve
If P substitute increases, demand shifts _ and supply shifts _
Right, left
If P complement increases, demand shifts _ and supply shifts _
Left, right
In a perfectly competitive market, buyers and sellers are _ _
Price takers
What is the equilibrium price?
Every buyer finds a seller and every seller finds a buyer, the market “clears”
Excess demand is (above/below) the EP causing an _ pressure on prices
Below, upward
Excess supply is (above/below) the EP causing a _ pressure on prices
Above, downward
What is the demand equation? Supply?
Demand: Q=a-bP
Supply: Q=c+dP
How do you find P?
Equate the two equations
P=(a-c)/(b+d)
Does minimum wage (inc.) effect supply and demand?
Effects supply not demand
Supply curve shifts lefts, demand curve doesn’t change
What does an increase in demand cause?
Increase in both eq. price and eq. quantity
DC shifts right
What does a decrease in demand cause?
Decrease in both eq. price and eq. quantity
DC shifts left
What does an increase in supply cause?
Decrease in eq. price and increase in eq. quantity
SC shifts right
What does a decrease in supply cause?
Increase in eq. price and decrease in eq. quantity
SC shifts left
Wage effects _ and income effects _
Supply, demand
What is absolute price?
Amount of money that must be spent to acquire one unit of that product
What is relative price?
Price of one good in terms of another
