Chapter 3: The Demand Side Of The Market Flashcards
Demand schedules
Tables that show the relationship between the price of a product and the quantity of the product demanded
Quantity demanded
The amount of a good or service that a consumer is willing and able to purchase at a given price
Demand curve
A curve that shows the relationship between the price of a product and quantity of the product demanded
Market demand
The demand by all the consumers of a given good or service
The law of demand
The inverse relationship between the price of a product and the quantity of the product demanded
Purchasing power
The quantity of goods and services that consumer can buy with a fixed income
Certainly parings condition
All else equal
Variables that shift market demand
Income Prices of related goods Tastes Population and demographics Expectations
Normal good
When demand increases following a rise in income and decreases following a fall in income
Hot dogs < streaks
Inferior good
When demand decreases following a rise in income and increases following a fall in income
Substitutes
Goods and services that can be used for the same purpose
Example: energy drinks and coffee
Two goods are substitutes of each other if:
When you buy more of one, you buy less of the other.
A decrease in the price of a substitute cause the demand curve curve for a good to shift to the left
Complements
Goods and services that are used together
Example: hamburgers and buns
Demographics
Refers to the different type of people that make up a population
Quantity supplied
The amount of a good or service that a firm is willing and able to supply at a given price
Supply schedule
Table that shows the relationship between the price of a product and the quantity of the product supplied
Supply curve
Shows the relationship between the price of a product and the quantity of the product supplied
Law of supply
Holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price result in decreases in the quantity supplied
Most important variables of that shift the supply curve
Price of inputs Technological change Prices of substitutes in production Number of firms in the market Expected future prices
The factor most likely to cause the supply curve to shift
Price of an input
Technological change
+ or - change in the ability of a firm to produce a given level of output from a given quantity of inputs
Market equilibrium
Only at market equilibrium will the quantity demanded equal the quantity supplied
Surplus
When the quantity supplied is greater than the quantity demanded
