Macro Economics Chapter 03 Power Point Flashcards
Why is this chapter 3 important?
•It introduces basic supply and demand analysis
What is demand?
•Demand represents the choice making behavior of buyers
What does “ceteris paribus” mean?
•All else remains the same
What is the law of demand?
•There is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus
What is a demand schedule?
•Shows the quantities of a good or service that people are willing and able to buy at different prices
Explain a Demand schedule
An individual buyer’s Demand schedule for buying DVDs.point price for DVD Quantity per yearA $20 4B $15 6C $10 10D $5 16
What is a demand curve?
•Depicts the relationship between price and quantity demanded
Why do demand curves have a negative slope?
•At a higher price buyers will buy fewer units, and at a lower price they will buy more units
What is market demand?
•The summation of the individual demand schedules in a market
Describe an Market demand schedule
Market Demand Schedule for DVDs Quantity Demanded per YearPrice per DVD Fred + Mary = Total Demand$25 1 0 1$20 2 1 3$15 3 2 5$10 4 5 9
IMPORTANT - KNOW THE DIFFERENCE BETWEEN A CHANGE IN THE QUANTITY DEMANDED AND A CHANGE IN DEMAND
IMPORTANT - KNOW THE DIFFERENCE BETWEEN A CHANGE IN THE QUANTITY DEMANDED AND A CHANGE IN DEMAND
When price changes, what happens?
•The curve does not shift - there is a change in the quantity demanded
Change in price causes???
Change in Quantity Demanded
If a price decreases describe how it effects the S & D graph.
Downward movement along the demand curve.Increase in quantity demanded
If a price increases describe how it effects the S & D graph.
Upward movement along the demand curveDecrease in quantity demanded
When something changes other than price, what happens?
•The whole curve shifts,there is a change in demand
Change in nonprice determinant causes a change in demand or change in quantity demanded?
Change in demand
If a there is a change in a non price determinant describe how it effects the S & D graph.
Leftward or rightward shift in the demand curveDecrease or increase in demand
What can cause a demand curve to shift? A change in:
Number of buyers in the market•Tastes and preferences•Income•Expectations•Prices of related goods
What is the conclusion with price and demand?
•Changes in nonprice determinants can produce only a shift in a demand curve and not a movement along the demand curve
What is a normal good?
•Any good for which there is a direct relationship between changes in income and its demand curve
What is an inferior good?
•Any good for which there is an inverse relationship between changes in income and its demand curve
What are substitute goods?
•Goods that compete with one another for consumer purchases
What happens when the price increases for a good that has a substitute?
•The demand curve for the substitute good increases
What happens when the price decreases for a good that has a substitute?
•The demand curve for the substitute good decreases
What does a direct relationship between price and quantity mean?
•The two move in the same direction
What are complementary goods?
•Goods that are jointly consumed with another good
What happens when the price increases for a good that has a complement?
•The demand curve for the substitute good decreases
What happens when the price decreases for a good that has a complement?
•The demand curve for the substitute good increases
What does an inverse relationship between price & quantity mean?
•It means that the two move in opposite directions
What is supply?
•Supply represents the choice making behavior of sellers
What is the law of supply?
•There is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus
Why do supply curves have a positive slope?
•Only at a higher price will it be profitable for sellers to incur the higher opportunity cost associated with supplying a larger quantity
What is market supply?
•The horizontal summation of all the quantities supplied at various prices that might prevail in the market
IMPORTANT - KNOW THE DIFFERENCE BETWEEN A CHANGE IN THE QUANTITY SUPPLIED AND A CHANGE IN SUPPLY
IMPORTANT - KNOW THE DIFFERENCE BETWEEN A CHANGE IN THE QUANTITY SUPPLIED AND A CHANGE IN SUPPLY
When price changes, what happens?
•The curve does not shift - there is a change in the quantity supplied
Change inPrice effects?
Change in Quantity Supplied
When something changes other than price, what happens?
•The whole curve shifts - there is a change in supply
Change in nonprice determinant causes???
Change in supply
What can cause a supply curve to shift? A change in:
•Number of sellers in the market•Technology•Resource prices•Taxes and subsidies•Expectations of producers•Prices of other goods the firm could produce
What is the conclusion?
•Changes in nonprice determinants can produce only a shift in a supply curve and not a movement along the supply curve
What is a market?
•Any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged
What is the equilibrium price?
•The price towards which the economy tends
Where is the equilibrium price?
•At the price where the quantity demanded and the quantity supplied are equal
