Chapter 3- Supply and Demand

Question 1

Demand

Answer 1

demand curve- function that shows the quantity demanded at different prices
quantity demanded- the amount of a good buyers are willing to buy at a particular price
price and quantity demanded are negatively affected(when one increases, the other decreases)
horizontal read- how much consumers are willing and able to purchase(“at a price of … consumers are willing to buy …”)
vertical read- the maximum price buyers are willing to spend(“the maximum price buyers are willing to pay to purchase … is this amount”)
when prices are high, most valuable uses are first
consumer surplus- the difference between highest price and what consumer paid
total consumer surplus- all surpluses combined

Question 2

Demand Shifts

Answer 2

increase in demand- shifts towards the right and outwards. Occurs when people want to buy more at every price level
decrease in demand- shifts towards the left and inward. Occurs when people want to buy less at every price level

Question 3

Demand Shifters

Answer 3

Income- when income stays the same, buyers buy inferior goods. when income rises they buy normal goods. Vice versa
Population- as population increases, demand increases. vice versa
Substitutes- 2 goods are substitutes when it’s one or the other(Apple v Microsoft). decrease in price for one, means decrease in demand for other.
Complements- 2 goods that go together(iPhone and cases). as price for one decreases, demand for other increases
Expectation- if buyers expect prices to drop, demand will decrease until the price does. vice versa
Tastes- rises and falls with seasonal changes in taste

Question 4

Quantity Demanded vs Demand

Answer 4

they are NOT the same
change in QD is simply the change of the amount buyers want from 1 price level to another
change in demand is when the whole line shifts(occurs due to demand shifters)

Question 5

Supply

Answer 5

quantity supplied- the amount that suppliers are willing to supply for a particular price
as quantity supplied increases, price increases
supply curve- function that shows the quantity supplied at different prices
producer surplus- the difference between market price and minimum price seller would have sold it
total producer surplus- combined producer surpluses
horizontal read- at a price of … sellers are willing to sell this much
vertical read- to produce this much seller must be paid a minimum of …

Question 6

Supply Shifters

Answer 6

technological innovations- decreases costs
taxes(costs $$) and subsidies(saves $$)
expectations- how suppliers will think prices will act in the future
new or less competition-

Question 7

Supply Shifts

Answer 7

increase in supply- moves down and to the right

decrease in supply- moves up and to the left