Week 2 Flashcards
What are the 3 characteristics of perfect competition?
- Many buyers and sellers
- Identical products
- No barriers to entry
What are the following definitions?
Demand schedule
Quantity demanded
Demand schedule: A table that shows the
relationship between the price of a product and the quantity of the product demanded.
Quantity demanded: The amount of a good or service that a consumer is willing and able to purchase at a given price
What are the following definitions?
Demand curve
Market demand
Demand curve: A curve that shows the relationship between the price of a product and the quantity of the product demanded.
Market demand: the demand by all the
consumers of a given good or service.
What is ceteris paribus
Ceteris paribus: The assumption that all other variables are constant when
analyzing the relationship between two variables—such as price and quantity demanded.
What is the law of demand?
Law of demand: when the price falls quantity demanded will rise (all else equal).
Implication: Demand curve slopes downward
What is the substitution effect?
The change in the quantity demanded due to a change in price making the good more or less expensive relative to other goods that are substitutes.
What is the income effect?
Income effect: The change in the quantity demanded due to the effect of a change in the good’s price on consumers’ purchasing power.
What is a normal good?
A good for which the demand increases as income rises, and decreases as income falls
What is an inferior good?
A good for which the demand decreases as income rises, and increases as income falls
What are substitutes?
Goods and services that can be used for the same purpose.
What are complements?
Goods and services which are used together.
If consumers’ tastes change, they may __________________
If a consumers’ tastes change, they may buy more or less of the product.
Increases in the number of people buying something will increase equal to the _________________
Increases in the number of people buying something will increase equal to the amount being demanded
What is a supply schedule?
Supply schedule: A table that shows the
relationship between the price of a product and the quantity of the product supplied.
What is quantity supplied?
Quantity supplied: The amount of a good or
service that a firm is willing and able to supply at a given price
