Chapter 4- Supply Demand Market Equilibrium

Front 1

The individual demand curve shows

Back 1

the relationship between the price of the good and the quantity that a consumer is willing to buy during a particular time period, holding all variables constant

Front 2

To construct a demand curve, we use the data in a demand schedule, which contains

Back 2

for each price, the quantity that a consumer is willing to buy

Front 3

The law of demand states that

Back 3

the lower the price, the higher the quantity demanded, all other things held constant. Thus the demand curve is negativly sloped

Front 4

Substituion effect

Back 4

a fall in the price of the good lowers the opportunity cost of consumer it (the number of other goods you must give up) and thus consumers are likely to substitue this good for others)

Front 5

Income effect

Back 5

A fall in the price means that a given amount og money will buy more of all goods; in other words, real income has increased. The consumer is likely to purchase more of this good and of other goods

Front 6

A change in quantity demanded refers to a movement along

Back 6

the demand curve

Front 7

The __________ curve shows the relationship between the price of the good and quantity that all conswumers together are willing to buy

Back 7

market demand curve

Front 8

A ________ market is composed of a large number of firms

Back 8

perfectly competetive

Front 9

What are the 5 main variables that affect seller decisions?

Back 9

1. the price of the product
2. The cost of inputs used to produce the product
3. The state of production technology
4. Producer expectations about future prices
5. Taxes or subsidies from the government

Front 10

When the quantity of a product demanded equals the quantity supplied is called

Back 10

market equilibrium

Front 11

If there is ________ the price will tend to increase, causing the quantity demanded to decrease and the quantity supplied to decrease

Back 11

Excess demand

Front 12

If there is _________ the price will tend to decrease, causing tje quantity demanded to increase and the quantity supplied to decrease

Back 12

excess supply

Front 13

What causes a change in demand?

Back 13

A change in a variable other than the price

Front 14

What causes a change in quantity demanded?

Back 14

A change in the price of the good itself

Front 15

What are normal goods?

Back 15

goods for which an increase in income increases demand

Front 16

What are inferior goods?

Back 16

goods for which a decrease in income increases demand

Front 17

If the price of a substitute good rises, demand will

Back 17

increase

Front 18

A change in a variable other than the price causes a ________.

Back 18

change in supply; a change in the price of the good itself causes a change in quantity supplied

Front 19

Effects of increases in supply

Back 19

1. a decrease in input costs
2. an advance in technology
3. an increase in the number of producers
4. expectations of lower future prices
5. subsidy (or a decrease in taxes)

Front 20

Effects of decrease in supply

Back 20

1. an increase in input costs
2. a decrease in the number of producers
3. expectations of higher future prices
5. taxes

Front 21

Where the supply curve and the demand curve intersect

Back 21

What is the equilibrium?

Front 22

Suppose that the initial price of a mobile phone is $100 and the initial quantity demanded is 500 phonesper day. Depict graphically the effects of a technological innovation that decreases the cost of producing mobile phones. Label the starting point with and i and the new equilibrium with a n.

Back 22

The graph should illustrate that the supply curve shifts to the right (increases), so the innovation decreases the equilibrium price and increases the equilibrium quantity.

Front 23

Suppose that bananas and apples are normal goods, and that the price of bananas falls. If the income effect outweights the substitution effect, we would predict that people will consume ______ bananas and _______ apples.

Back 23

more;more

Front 24

The law of supply states that

Back 24

firms supply more of a product as the price of the product rises

Front 25

suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza we would expect that

Back 25

the price of pizza will decrease

Front 26

When the price of apples goes up the quantity demanded for apples

Back 26

will decrease

Front 27

Becky demands more raisins as her income increases. From this, we can conclude that

Back 27

raisins are a normal good

Front 28

Suppose that a prodcut benedits from a successful advertising campaign. The result is that

Back 28

The demand for the product increases

Front 29

Two goods are complements if

Back 29

the demand for one good decreases when the price of the other increases