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20 Cards in this Set
- Front
- Back
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Quantity demanded
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amount of good or service that consumers would purchase at a particular price
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Law of demand
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quantity demanded of a good/service varies inversely with price; the lower the price, the larger quantity demanded. The higher the price, smaller the demanded quantity.
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Substitution effect
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effect of a change in the price of a good or service on amount purchased that results from a change in purchasing power of consumer’s income due to price change.
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Income effect
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effect of a change in the price of good/service on the amount purchased which results from consumer substituting a relatively less expensive alternative (hurts inferior products).
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Demand
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relationship between the quantities of a good or service that consumers desire to purchase at any particular time and the various prices that can exist for the good or service.
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Demand schedule
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a table recording the number of units of a good or service demanded at various possible prices.
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Demand curve
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graph of relationship between price and quantity demanded (Quantity = x, price = y)
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Supply
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relationship between quantities of a good/service that sellers wish to market at any particular time and the various prices that can exist for the good or service
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Supply schedule
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a table recording the number of units of a good or service supplied at various possible prices
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Supply curve
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graph of relationship between price and quantity supplied (same vars as DC)
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Law of supply
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quantity supplied of good/service varies directly with price (lower the price, smaller the quantity supplied; higher the price, larger the quantity supplied)
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Equilibrium price
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price at which quantity of good/service offered by suppliers is exactly equal to the quantity that is demanded by purchasers in a particular period of time.
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Shortage
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quantity demanded > quantity supplied. Occurs when price is below equilibrium price. Causes increase in prices.
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Surplus
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quantity supplied > quantity demanded. Occurs when price is above equilibrium price. Causes decreases in prices.
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Substitute
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product that is interchangeable in use with other product.
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Complement
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product that is employed jointly in conjunction with another product
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Shift in demand
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change in quantity of good/service that would be purchased at each possible price
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Shift in supply
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change in quantity of a good or service that would be offered for sale possible price.
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What determines demand?
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-Taste/preferences
-Prices of substitutes -Consumer expectations (what you expect in future to happen to price) -Income of consumers -Prices of complimentary goods (price of oil is high, large cars demand drops) -Number of buyers |
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What determines supply?
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-Technology
-Price of resources -Producer expectations -Short-run investments (hiring more overtime, add shifts) -Long-run investments (build new factories, serious investment) |
