Macro Econ Chapter 4

Front 1

demand

Back 1

relation btwn price of a good and quantity tht consumers are willing and able to buy per period.

Front 2

law of demand

Back 2

quantity of a good tht consumers are willing and able to buy per period relates inversely, or negatively, to the price. Higher price=smaller quantity demanded. lower price=greater quantity demanded.

Front 3

substitution effect

Back 3

when price of a good falls, tht good becomes cheaper compared to other goods so consumers tend to substitute tht good for other goods.

Front 4

money income

Back 4

# of $ a person receives per period

Front 5

real income

Back 5

income measured in terms of goods and services it can buy; changes when price changes.

Front 6

income effect of a price change

Back 6

a fall in price of a good inc. consumer's real income, making consumers more able to purchase goods.

Front 7

demand curve

Back 7

curve shwing the relation btwn price of a good and the quantity consumers are willing and able to buy per period, other things constant.

Front 8

why does demand curve slope dwnward?

Back 8

reflects law of demand: price and quantity demanded are inversely related.

Front 9

quantity demanded

Back 9

amount of a good consumers are willing and able to buy per period at a particular price, as reflected by a pt. on demand curve.

Front 10

variables that can affect market demand

Back 10

1. $ income of consumers
2. prices of other goods.
3. consumer expectations
4. # or composition of consumers in market
5. consumer tastes.

Front 11

changes in consumer income

Back 11

consumer $ inc = right shift of demand curve
consumer $ dec = left shift of demand curve.

Front 12

two types of goods

Back 12

normal goods
inferior goods

Front 13

normal goods

Back 13

a good (such as new clothes) for which demand inc. or shifts right as comsumer income rises.

Front 14

inferior goods

Back 14

a good (such as used clothes) for which demand dec. or shifts left as consumer income rises.

Front 15

changes in prices of other goods

Back 15

substitutes and compliments

Front 16

substitutes

Back 16

(coke/pepsi) goods tht relate where an inc in price of 1 shifts demand for the other right.

Front 17

compliments

Back 17

(milk and cookies) goods tht relate where an inc. in price of 1 shifts demand for other to the left.

Front 18

shift of demand curve

Back 18

a change in one of the determinants of demand other than price which changes demand.

Front 19

supply

Back 19

relation btwn price and quantity supplied.

Front 20

law of supply

Back 20

how much producers are willing and able to offer for sale per period at each possible price. lower the price, smaller quantity supplied. higher the price, greater quantity supplied.

Front 21

supply curve

Back 21

curve shwing relation btwn price of a good and the quantity producers are willing and able to sell per period.

Front 22

2 reasons why producers offer more for sale when price rises.

Back 22

1 .price inc., a producer becomes more willing to supply the good and more willing to inc quantity supplied.
2. inc prices inc producers ability to supply good.

Front 23

quantity supplied

Back 23

particular amount offered for sale at a particular price

Front 24

shifts of supply curve

Back 24

1. state of technology. 2. prices of resources (price inc. = left shift) 3. prices of other goods. 4. producer expectations. 5. # of producers n market. (more producers = right shift)

Front 25

market

Back 25

sort out difference btwn demanders and suppliers. reduce transaction costs

Front 26

transaction costs

Back 26

costs of time and info req. to carry out market exchange

Front 27

surplus

Back 27

amount where quantity supplied exceeds quantity demanded; usually forces price down.

Front 28

shortage

Back 28

amount where quantity demanded exceeds quantity supplied; usually forces price up.

Front 29

equilibrium

Back 29

quantity demanded = quantity supplied. independent plans of buyers and sellers match up.

Front 30

disequilibrium

Back 30

condition in a market when plans of buyers dont match sellers; a temp. mismatch btwn quantity supplied and quantity demanded as the market finds equil.

Front 31

price floors

Back 31

min. selling price tht is above the equil. price. distorts markets and reduces econ. welfare

Front 32

price ceilings

Back 32

max selling price. must be set below equil. price.