Chapter 3 : Supply and Demand Flashcards
What does qt demanded refer to?
A flow, as opposed to a stock
What 5 variables influence demand?
- Consumer’s income
- Price of other products
- Consumer’s preferences
- Population
- Significant changes in weather
Other things being equal in latin?
Ceteris paribus
Who came up with the law of demand?
Alfred Marshall
Difference between demand and qt demanded?
Qt demanded = influenced by price only. One point on the curve
Demand = influenced by many variables. Shift in the entire demand curve
Difference between normal and inferior goods
Normal : demand of a good increases with the consumer’s income
Inferior : demand of a good decreases with the consumer’s income
Substitutes vs Complements and impact on price of original good
Substitute = something that can replace a good
Complement = something that is bought with a good
Price of substitute increases = more demand of original good
Price of substitute decreases = less demand of original good
Price of complement increases = less demand of original good
Price of complement decreases = more demand of original good
Factors impacting supply
Other than product’s own price (impacts qt. supplied)
1. Price of inputs
2. Technology
3. Government taxes and subsidies
4. Significant changes in weather
5. Number of suppliers
Slope of demand curve
Negative
Slope of supply curve
Positive
What are inputs? How do they impact the supply curve?
Inputs : everything used to make a product (labor, machines, material)
Price of inputs increases = decrease in supply
Price of inputs decreases = increase in supply
What is the impact on the supply curve of a cost-saving innovation?
Rightward shift of the supply curve (more supply)
Effects of taxes and subsidies on supply
Government taxes decrease supply
Subsidies increase supply
Complement and substitute prices’ impacts on the supply of a good
Decrease in the price of an item (not profitable for suppliers anymore) = increase of the supply of its substitute (more profitable for suppliers)
What can a change in the quantity supplied be due to?
- Change in supply with the price constant
- Movement along the curve due to a change in price
- Both
What is a market?
Any place in which buyers and sellers can negotiate the exchange of goods and services
What is a perfectly competitive market?
Markets in which the number of buyers and sellers is sufficiently large that none of them have an influence on the market prices (market price is only determined by the equilibrium)
What are the consequences of a desequilibrium price?
Excess demand or excess supply
Impact of increased and decreased demands on the market equilibrium
Increased demand : more qt exchanged, at a higher equilibrium price
Decreased demand : less qt exchanged, at a lower equilibrium price
Impact of increased and decreased supplies on the market equilibrium
Increased supply : more qt exchanged, lower equilibrium price
Decreased supply : less qt exchanged, higher equilibrium price
Mathematical equation of the equilibrium
Qd = Qs
What are the three conditions that must be satisfied in order for the price determination to be well-described by the demand-and-supply model?
- Large number of consumers (each one small relative to the size of the market)
- Large number of produces (each one small relative to the size of the market)
- Producers must be selling “homogenous” versions of their product
How did governments react to the changes in demand and supply changes due to the pandemic?
Governments increased their spendings by borrowing and issued new bonds : IOUs
