Test 2 Flashcards
Understand how a change in quantity demanded is depicted graphically.
An increase in Quantity Demanded (Qd) = a rightward movement on the demand curve
A decrease in Quantity Demanded (Qd) = a leftward movement on the demand curve
Understand how a change in demand is depicted graphically.
An increase in Demand = a rightward shift of the entire demand curve
A decrease in Demand = a leftward shift of the entire demand curve
Understand how a change in quantity supplied is depicted graphically
An increase in Quantity Supplied (Qs) = a rightward movement on the supply curve
A decrease in Quantity Supplied (Qs) = a leftward movement on the supply curve
Understand how a change in supply is depicted graphically.
An increase in Supply = a rightward shift of the entire supply curve
A decrease in Supply = a leftward shift of the entire supply curve
Understand the law of demand
The Law of Demand = an inverse relationship exists between PRICE and QTY. DEMANDED.
Therefore, PRICE and QTY. DEMANDED always move or change in OPPOSITE directions. So,
if PRICE increases then QTY. DEMANDED decreases.
If PRICE decreases then QTY. DEMANDED increases.
Understand shortage situation graphically and facts regarding
In a shortage situation, graphically the price is BELOW the equilibrium price.
In the case of shortage, the fact of the matter is: Qs < Qd.
Understand surplus situation graphically and facts regarding
In a surplus situation, graphically the price is ABOVE the equilibrium price.
In the case of surplus, the fact of the matter is: Qs > Qd
Understand the law of supply
The Law of Supply = a direct relationship exists between PRICE and QTY. SUPPLIED.
Therefore, PRICE and QTY. SUPPLIED always move or change in the SAME direction. So,
If PRICE increases then QTY. SUPPLIED increases.
If PRICE decreases then QTY. SUPPLIED decreases
Define/Understand: normal good
Normal good = any good for which there is a direct relationship between INCOME and the
DEMAND for the good. So, if INCOME of consumers increases then DEMAND for a normal
good increases. And if INCOME of consumers decreases then DEMAND for a normal good
decreases.
Define/Understand: inferior good
Inferior good = any good for which there is an inverse relationship between INCOME and
the DEMAND for the good. So, if INCOME of consumers increases then DEMAND for an
inferior good decreases. And if INCOME of consumers decreases then DEMAND for an
inferior good increases.
Define: quantity demanded
Qty. Demanded = the specific amount consumers are willing to purchase at a specific price
Define: quantity supplied
Qty. Supplied = the specific amount firms/sellers are willing to sell at a specific price
Define/determine: complements
Complements = goods that are typically consumed together…like ketchup and french fries.
For complements, there is an inverse relationship between the price of one good and the
demand for some other good.
For example, if the price of one good (say ketchup) increases then consumers will tend to
purchase LESS KETCHUP, therefore the demand for other goods that are consumed with
ketchup (like french fries) will tend to decrease…..and vice versa….if the price of ketchup
were to decrease then consumers will tend to purchase MORE KETCHUP, therefore the
demand for french fries would tend to increase.
Define/determine: substitutes
Substitutes = goods that typically compete for consumer purchases…like Coke and Pepsi.
For substitutes, there is a direct relationship between the price of one good and the
demand for some other good.
For example, if the price of one good (say Coke) increases then consumers will tend to
drink LESS COKE, therefore the demand for other soft drinks that compete with Coke (like
Pepsi) will tend to increase….and vice versa…if the price of Coke were to decrease then
consumers will tend to drink MORE COKE, therefore the demand for Pepsi would tend to
decrease.
Understand any terms in the notes not mentioned on this list
This list covers most all of the terms. However, you should read through the notes and
take note of any terms not discussed on this list as all the material in the notes is “fair
game” for the test
