Economics for Managers Chapter 2 Flashcards
Demand
The functional relationship between the price of a good or service and the quantity demanded by consumers in a given time period, all else held constant.
Functional Relationship
A relationship between variables, usually expressed in an equation using symbols for the variables, where the value of one variable, the independent variable, determines the value of the other, the dependent variable.
Normal Good
A good for which consumers will have a greater demand as their incomes increase, all else held constant, and a smaller demand if their incomes decrease, other factors held constant.
Inferior Good
A good for which consumers will have a smaller demand as their incomes increase, all else held constant, and a greater demand if their incomes decrease, other factors held constant.
Substitute Goods
Two goods, X and Y, are substitutes if an increase in the price of good Y causes consumers to increase their demand for good X or if a decrease in the price of good Y cases consumers to decrease their demand for good X.
Complementary Goods
Two goods, X and Y, are complementary if an increase in the price of good Y causes consumers to decrease their demand for good X or if a decrease in the price of good Y causes consumers to increase their demand for good X.
Individual Demand Function
The function that shows, in symbolic or mathematical terms, the variables that influence the quantity demanded of a particular product by an individual consumer.
Market Demand Function
The function that shows, in symbolic or mathematical terms, the variable that influence the quantity demanded of a particular product by all consumers in the market and that is thus affected by the number of consumers in the market.
Demand Curve
The graphical relationship between the price of a good and the quantity consumers demand with all other factors influencing demand held constant.
Demand Shifters
The variables in a demand function that are held constant when defining a given demand curve, but that would shift the demand curve if their values changed.
Negative (Inverse) Relationship
A relationship between two variables, graphed as a downward sloping line, where an increase in the value of one variable causes a decrease in the value of the other variable.
Change in Quantity Demanded
The change in quantity consumers purchase when the price of the good changes, all other factors held constant, pictured as a movement along a given demand curve.
Change in Demand
The change in quantity purchased when one or more of the demand shifters change, pictured as a shift of the entire demand curve.
Horizontal summation of Individual Demand Curves
The process of deriving a market demand curve by adding the quantity demanded by each individual at every price to determine the market demand at every price.
Linear Demand Function
A mathematical demand function graphed as a straight-line demand curve in which all the terms are either added or subtracted and no terms have exponents other than 1.
Supply
The functional relationship between the price of a good or service and the quantity supplied by producers in a given time period, all else held constant.
Individual Supply Function
The function that shows, in symbolic or mathematical terms, the variable that influence the quantity supplied of a particular product by an individual producer.
Market Supply Function
The function that shows, in symbolic or mathematical terms, the variables that influence the quantity supplied of a particular product by all producers in the market and that is thus affected by the number of producers in the market.
Supply Curve
The graphical relationship between the price of a good and the quantity supplied, with all other factors influencing supply held constant.
Supply Shifters
The other variables in a supply function that are held constant when defining a given supply curve, but that would cause that supply curve to shift if their values changed.
Positive (Direct) Relationship
A relationship between two variables, graphed as an upward sloping line, where an increase in the value of one variable causes an increase in the value of the other variable.
Linear Supply Function
A mathematical supply function, which graphs as a straight-line supply curve, in which all terms are either added or subtracted and no terms have exponents other than 1.
Change in Quantity Supplied
The change in amount of a good supplied when the price of the good changes, all other factors held constant, pictured as a movement along a given supply curve.
Change in Supply
The change in the amount of a good supplied when one or more of the supply shifters change, pictured as a shift of the entire supply curve.
Equilibrium Price
The price that actually exists in the market or toward which the market is moving where the quantity demanded by consumers equals the quantity supplied by producers.
Equilibrium Quantity (Qe)
The quantity of a good, determined by the equilibrium price, where the amount of output that consumers demand is equal to the amount that producers want to supply.
