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29 Cards in this Set
- Front
- Back
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Markets
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Arrangements that individuals have for exchanging with one another
Represent the interaction of buyers and sellers for goods and services |
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Demand
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A schedule showing how much of a good or service people will purchase at any price during a specified time period, other things being constant
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Law of Demand
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Quantity demanded is inversely related to price, holding other factors constant.
Price Increase Qd decrease Price decrease Qd Increase |
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What are we holding constant?
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Tastes and preferences
Expectations about the future Number of buyers in the market Price of other goods Income |
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The demand schedule
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Table relating prices to quantity demanded
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Demand Curve
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A graphical representation of the demand schedule
Negatively sloped line showing inverse relationship between price and quantity demanded, all else equal |
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Market Demand
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The demand of all consumers in the marketplace for a particular good or service
Summation at each price of the quantity demanded by each individual |
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Determinants of Demand
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Tastes
Expectations Number of buyers Prices of other goods -Substitutes & complements Income -Normal and Inferior |
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Ceteris-Paribus Conditions
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Determinants of the relationship between price and quantity that are unchanged along a curve
Changes in these factors cause a curve to shift |
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Complements
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Two goods are complements when a change in the price of one causes an opposite shift in the demand curve for the other.
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Substitutes
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Two goods are substitutes when a change in the price of one causes a shift in demand for the other in the same direction as the price change
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Normal Goods
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Goods for which demand rises as income rises; most goods are normal goods
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Inferior Goods
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Goods for which demand falls as income rises
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Changes in demand versus changes in quantity demanded
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A change in a good’s own price leads to a change in quantity demanded.
This is a movement along the same curve. A change in one or more of the non-price determinants (income, tastes, etc.) will lead to a change in demand. This is a shift of the whole curve. |
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Supply
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Schedule showing relationship between price and quantity supplied for a specified time period, other things being equal
The amount of a product or service that firms are willing to sell at alternative prices |
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Law of Supply
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The price of a product or service and the quantity supplied are directly related.
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The Supply Schedule
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The supply schedule is a table relating prices to quantity supplied at each price
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Supply Curve
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A graphical representation of the supply schedule
Positively sloped line showing direct relationship between price and quantity supplied, all else equal |
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Supply Curve
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A graphical representation of the supply schedule
Positively sloped line showing direct relationship between price and quantity supplied, all else equal |
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Determinants of Supply
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Weather
Resource prices Expectations Subsidies & taxes Technology Other prices of goods Number of sellers |
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Changes in supply versus changes in quantity supplied
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A change in one or more of the non-price determinants will lead to a change in supply.
This is a shift of the whole curve. A change in a good’s own price leads to a change in quantity supplied. This is a movement along the same curve |
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Equilibrium (Market Clearing) Price
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The price that clears the market
The price at which quantity demanded equals quantity supplied The price where the demand curve intersects the supply curve |
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Equilibrium
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The situation when quantity supplied equals quantity demanded at a particular price
There tends to be no movement of the price of the quantity away from this point unless demand or supply changes. Equilibrium is a stable point – any point that is not equilibrium is unstable and will not persist. |
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Shortages
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The situation when quantity demanded is greater than quantity supplied
Qd > Qs Exist at any price below the market clearing price |
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Surpluses
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The situation when quantity supplied is greater than quantity demanded
Qd < Qs Exist at any price above the market clearing price |
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Relative Price
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The price of a commodity in terms of another commodity
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Money Price
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Price we observe today in today’s dollars (absolute, or nominal price)
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The law of demand says that prices and quantity demanded are inversely related.
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At a higher price people buy less, at a lower price people buy more.
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The law of supply states that price and quantity supplied are directly related.
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At a high price firms offer more; at a low price firms offer less.
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