Chapter 3 - Supply & Demand Flashcards
A SCHEDULE showing how much of a good or service people will purchase at any price during a specified time period, other things constant
demand
all of the arrangements that individuals have for exchanging with one another
market
a negative, or inverse, relationship between the price of any good or service and the quantity demanded, holding other factors constant
law of deman (ceteris paribus)
price of a commodity in terms of another commodity
relative price
price we observe today in today’s dollars
money price
graphical representation of the demand schedule
demand curve
inferior goods
goods for which demand falls as income rises
goods for which demand rises as income rises; most goods are these goods
normal goods
two determinants of demand
income, tastes/preferences, prices of related goods
two goods are substitutes when a change in the price of one causes a shift in demand for the other in the same direction as the price change
substitutes
two goods are complements when a change in the price of one causes an opposite shift in the demand curve for the other
complements
anything that can shift the demand curve
determinant
schedule showing relationship between price and quantity supplied for a specified time period, other things being equal
supply
amount of a product or service that firms are willing to sell at alternative prices
supply
the higher the price of a good, the more of that good sellers will make available over a specified time period, other things being equal
law of supply
at higher prices, a larger quantity will generally be supplied than at lower prices and vice versa
law of supply
a graphical representation of the supply schedule
supply curve
Two determinants of supply
cost of inputs, taxes/subsidies, technology/productivity, price expectations, number of firms in industry
price that clears the market and at which quantity demanded equals quantity supplied
equilibrium price
situation when quantity supplied equals quantity demanded at a particular price
equilibrium
situation when quantity demanded is greater than quantity supplied
shortage
shortages exist at any price blank the market clearing price
below
the situation when quantity supplied is greater than quantity demanded
surplus
surplus exists at any price blank the market clearing price
above
