Unit 2 Flashcards
Law of Demand
High price = less quantity demand
Less Price = More quantity demand
Law of supply
price increases = quantity supplied increase
prices decreases = quantity supplied decreases
Quantity demanded
amount of good or service consumers are willing to buy at some specific price
quantity supplied
amount of good or service producers are willing to sell at some specific price
demand curve
graph that shows relationship between Q.D. and price
supply cure
graph that shows relationship between Q.S. and price
equilibrium price
quantity demanded = quantity supplied
diminishing marginal utility
as a person increases consumption of something, the more times they have it, the less marginal utility they derive from consuming it
income effect
As one’s income grows, the income effect predicts that people will begin to demand more (and vice-versa).
income decreases people will demand less
substitution effect
How a change in price of a good affects demand compared to others.
If price of apples rises, consumers will substitute apples for other goods like bananas
market demand
total quantity of a product that consumers are willing and able to buy at a given price within a market
demand schedule
A list or table showing how much of a good
or service, consumers will want to buy ät different prices
supply schedule
list showing ow much of a good producers will supply at diff prices
change in income
increase in income, increase in the amount of normal goods bought
DEMAND curve for NORMAL goods shifts RIGHT
DEMAND curve for INFERIOR goods shifts LEFT
decrease in income, increase int he amount of inferior goods bought
DEMAND curve for NORMAL goods shifts LEFT
DEMAND for INFERIOR good shifts RIGHT
substitute
pairs of good for which a rise in the price of one leads to an increase in demand for the other
complementary goods
Complementary goods are products that increase in value when the demand for relative products increases. For example, if the demand for cell phones increases, the demand for cell phone chargers might also increase.
market supply
total amount of an item producers are willing and able to sell at different prices over a given period of time
shift on a graph
Shifts occur due to changes in demand and supply for goods or services caused by different factors like changes in consumers income
movement on a graph
change in the price of a good results in a movement
price elasticity of demand
through the lens of consumers
% change in quantity demanded/% change in price
determinants for demand
available close substitutes: really elastic
necessity vs. luxury
% of budget (higher %, more elastic)
Time to adjust to prices
(don’t have time: inelastic
more time: elastic)
elasticities
Unit elastic = 1
Elastic = >1, changes a lot due to price changes
Inelastic = <1, barely going to change due to price
perfectly elastic demand
the case in which any price increases will cause the quantity demanded to drop to zero; the demand curve is a horizontal line
perfectly inelastic demand
the case in which the quantity demanded does not respond at all to changes in the price; the demand cure is a vertical line
price elasticity of supply
through firms lens
price change sensitive to quantity supplied
%change in Q.S./ % change in price
determinants
more alternate inputs of an object = elastic
less = inelastic
time: the longer you have the more elastic it becomes
elastic supply
Situation where any change in price, in percentage terms, will
bring about a larger change in quantity supplied.
inelastic supply
Situation where any change in price, in percentage terms will bring about a smaller change in quantity supplied.
perfectly elastic supply
quantity supplied is zero below some price and infinite above that price
perfectly inelastic supply
the quantity supplied does not change at all regardless of the price
income elasticity of demand
% change in Q.D. / % change in income
positive = normal good
negative = inferior good
cross price elasticity
% change in Q.D. of good X / % change in price of good Y
positive = substitues
negative = complements
shortage
insufficiency of a good or service that occurs when the quantity
supplied occurs when the prices are bellow the equilibrium price)
Q.S. < Q.D.
below equilibrium
surplus
the excess product when supply is greater than quantity demanded
Q.D. < Q.S.
above equilibrium
producer surplus
price what firms are willing to sell at
the triangle BELOW Pe to the SUPPLY curve
consumer surplus
price consumers are willing to actually pay
the triangle ABOVE Pe to DEMAND curve
total economic surplus
the sum of consumer surplus and producer surplus.
Market imbalances
quantity supplied and quantity demanded in a market are not equal
disequilibrium
when the quantity demanded does not equal the quantity supplied
subsidies
financial benefit from GOv. that gives consumers and/or firms money
shift RIGHT in SUPPLY curve
No DWL and no need to find CS or PS in subsidies graph
Quota
a limit on the quantity of some sort of activity, such as imports.
DWL
the loss of society’s consumer surplus as a result of policies that artificially change prices or quantities.
Government intervention could cause a DWL
Shift SUPPLY curve LEFT
excise tax
tax on sales of a good or service (per-unit Tax)
SUPPLY curve shifts LEFT
tariff
a tax imposed on imports ( world price so vertical line instead of shift )
import quota
government imposed limits
on the quantity of a certain good that can be imported into a country.
free trade
policies that allow permit inexpensive imports and exports, without tariffs or
other trade barriers
movement on demand curve
when price rises, it cause movement along the demand curve up
when prices falls, cause a movement along the demand curve down
PRICE CHANGES QUANTITY DEMANDED NOT DEMAND
movement on supply
when price rises, the quantity supplied goes up causing a movement up the supply curve
when prices fall, the quantity supplied goes down causing a movement down the supply curve
