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43 Cards in this Set
- Front
- Back
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Section 1 |
Demand |
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Market |
Institution that brings buyers and sellers together |
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Assumption |
Competitive market--many buyers/sellers, no one can influence market outcome [price/qty] |
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Section 2 |
Scientific Method to Drive Law of Demand |
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1. Observation |
Problem to study [in-class shopping study] |
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2. Hypothesis |
People buying more of a good at a lower price
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3. Test |
Get data |
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4. Compare |
Compare findings with hypothesis |
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5. Goal |
Come up with a law |
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Market Demand |
Sum of individual demand curve |
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Law of Demand |
As price falls, quantity demand rises [ceteris paribus] |
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Demand Schedule |
Table showing combinations of quantities of goods buyer is willing/able to buy at each price [Jean example: 1 pair @ $35, 4 pair @ $15, etc] |
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Change In Quantity Demand |
Movement from point to point along demand curve, in response to price change only of good itself |
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Section 3 |
Determinants of Demand [Shift Factors] |
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1. |
Tastes/preferences increase, demand increases |
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2. Number of Buyers |
Population increases, demand increases
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3. Income of Consumer |
Normal good: Income increases, demand increases Inferior good [generic]: Income decreases, demand increases |
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4. Other Goods |
Complements: Price of compliment decreases, demand increases [ex: buy jeans (orig. good), but need top to match] Substitute [the original good]: Price of substitute decreases, demand decreases |
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5. Expectations |
[price or income] -Higher price in future, more more now -expect price to increase, demand increases now [ex: snow storm on east coast. people stocking up on goods] |
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Change In Demand |
Different combinations of quantity's purchased at each possible price |
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*On Test |
Increase in demand -graph shifts right Decrease in demand -graph shifts left |
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Section 4 |
Supply |
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Law of Supply |
As price rises, quantity supplied rises |
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Change in Quantity Supply |
Movement from point to point along supply curve, in response to price change only of the good itself |
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Section 5 |
Determinants of Supply [Shift Factors] |
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1. Resource Prices |
Inputs to production -resource price increases, supply decreases [less profitable] |
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2. Technology |
Better tech. = supply increase |
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3. Taxes |
Taxes increase, supply decreases [Subsidy increases, supply increases] |
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4. Price of Other Goods You Produce |
Higher price of secondary good = shifts resources to that good. Original good = supply decreases |
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5. Number of Sellers |
Population increases, supply increases |
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Change in Supply |
Different combinations of quantity's offered at each possible price |
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*On Test |
Increase in supply -graph shifts right Decrease in supply -graph shifts left |
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Section 6 |
Market Equilibrium |
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Market Equilibrium |
Where supply and demand are equal [market is efficient] |
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Equilibrium Price |
Price where quantity supplied and quantity demanded are equal; market clearing price |
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Equilibrium Quantity |
The quantity supplied and quantity demanded at equilibrium price |
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Surplus Response |
1. Seller drops price to rid inventory 2. Buyers increase quantity demanded in response to price drop |
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Response to Shortage |
1. Sellers raise price to maintain inventory Goal: to eliminate shortage |
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Key Idea |
Both situations show the pricing mechanism at work [invisible hand] |
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Section 7 |
Changes In Supply, Demand, and Equilibrium |
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Application: Government Set Prices |
Price Ceiling Ex: gas prices average ~ $1.70, looks to go to $5/gallon, gov. says not above $2/gallon
Price Floor Ex: minimum wage in labor market[surplus in labor market = unemployment] |
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Price Ceiling |
Sets a max. price a seller may charge. Must be set below equilibrium price [this helps the consumer] |
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Price Floor |
Sets a min. price a seller may receive. Must be set above equilibrium price [this helps the producer] |
