Chapter 4: Demand, Supply, and Markets Flashcards
Demand
a relation between the price of a good and the quantity that consumers are willing and able to buy per period, other things constant
Law of Demand
the quantity of a good that consumers are willing and able to buy per period relates inversely
Substitution effect of a price change
when the price of good falls, that good becomes cheaper compared to other goods so consumers tend to substitute that good for other goods
relative price
the price of one good relative to the prices of other goods
Money income
the number of dollars a person receives per period such as $400 per week
Real income
income measured by the goods and services it can buy; real income changes when the price changes
Income effect of a price change
a fall in the price of a good increases consumers’ real income, making consumers more able to purchase goods; for a normal good, the quantity demanded increases
demand schedule
lists possible prices along with quantity demanded at each price
Demand curve
a curve showing the relation between the price of a good and the quantity consumers are willing and able to buy per period, other things constant
downward, the law of demand
A demand curve slopes ________, reflecting ________
Quantity demanded
the amount of a good consumers are willing and able to buy per period at a particular price, as reflected by a point on a demand curve
demand
the entire relationship between price and quantity demanded
Individual demand
the relation between the price of a good and the quantity purchased per period by an individual consumer, other things constant
Market demand
the relationship between the price of a good and the quantity purchased per period by all consumers in the market, other things constant; sum of the individual demands in the market
Variables
can affect market demand are the money income of consumers, the prices of other goods, consumer expectations, the number or composition of consumers in the market, and consumer tastes
Normal good
a good such as new clothes, for which demand increases, or shifts rightward, as consumer income rises
Inferior good
a good, such as used clothes, for which demand decreases, or shifts leftward, as consumer income rises
Complements
goods such as Pepsi and pizza, that relate in such a way that an increase in the price of one shifts the demand for the other leftward
Tastes
consumer preferences; likes and dislikes in consumption; assumed to remain constant along a given demand curve
Movement along a demand curve
a change in quantity demanded resulting from a change in the price of the good, other things constant
Shift of a demand curve
movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good
Supply
a relation between the price of a good and the quantity that producers are willing and able to sell per period, other things constant
Law of supply
the amount of a good that producers are willing and able to sell per period is usually directly related to its price, other things constant
supply curve
a curve showing the relation between price of a good and the quantity producers are willing and able to sell per period, other things constant
Quantity supplied
the amount offered for sale per period at particular price, as reflected by a point on a supply curve
Individual supply
the relation between the price of a good and the quantity an individual producer is willing and able to sell per period, other things constant
Market supply
the relation between the price of a good and the quantity all producers are willing and able to sell per period, other things constant
Movement along a supply curve
change in a quantity supplied resulting form a change in the price of the good, other things constant
Shift of a supply curve
movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good
surplus
excess quantity supplied
Shortage
excess quantity supplied
Equilibrium
Quantity demanded equals quantity supplied
Equilibrium point
Intersection of the demand and supply curves
