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59 Cards in this Set
- Front
- Back
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Demand
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A schedule or curve showing the amounts of a good or service that a buyer is willing and able to purchase at various prices during some time period.
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Demand is a statement of a buyer's...
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plans or intentions with respect to the purchase of a product.
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The Law of Demand
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The principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price.
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3 Reasons why price and quantity demanded are inversely related:
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1. Price is an obstacle that deters consumers from buying (the lower the price, the more people will buy).
2. Diminishing Marginal Utility. 3. The Income Effect and the Substitution Effect. |
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Law of Diminishing Marginal Utility
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The principle that as a consumer increases the consumption of a good or service, the satisfaction obtained from each additional unit of the good or service decreases.
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Income Effect
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A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.
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Substitution Effect
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A change in the quantity demanded of a consumer good that results from a change in its expensiveness (relative to substitutes) caused by a change in the product's price.
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The Demand Curve shows _____ ______ on the horizontal axis and ______ on the vertical axis.
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quantity demanded, price
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The Demand Curve illustrates the fact that people...
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buy more of a product, service, or resource as its price falls.
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Market Demand (Total Demand)
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The demand schedule or demand curve of all buyers of a good or service.
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Determinants of Demand
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Factors other than price that determine the quantities demanded of a good or service.
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Determinants of Demand are sometimes called ______ ______ because they can cause the demand curve to shift to the left or right.
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demand shifters
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5 Determinants of Demand
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1. Consumers' tastes (preferences).
2. Number of buyers in the market. 3. Consumers' incomes. 4. Prices of related goods (substitute, complementary). 5. Consumer expectations. |
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Change of Demand
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A change in the quantity demanded of a good or service at every price (shift in demand curve).
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Consumers' Tastes for a given product can be affected by...
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the introduction of new products.
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An increase in the number of buyers is likely to...
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increase product demand.
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For most products, a rise in income causes an...
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increase in product demand.
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Normal Goods (desirable goods)
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A good or service whose consumption increases when incomes increase.
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Inferior Goods (less desirable goods)
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A good or service whose consumption declines as incomes rise, prices held constant. (i.e. used clothing, retread tires).
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A change in the price of a related good may either...
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increase or decrease the demand for that good, depending on whether the related good is a substitute or a complementary good.
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2 Types of related goods:
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1. Substitute Good
2. Complementary Good |
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Changes in consumer expectations may...
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shift demand. (i.e. speculating in a "hot" real estate market).
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Change in Quantity Demanded
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A movement from one point to another along the demand curve (not a change in demand or shift in the curve).
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Supply
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A schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale during a specific period.
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Law of Supply
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The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease.
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The Supply Curve shows _____ _____ on the horizontal axis and _____ on the vertical axis.
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quantity supplied, price
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The Supply Curve shows that price and quantity supplied are ______ _____.
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directly related (positive slope).
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The Demand Curve shows that price and quantity demanded are _____ _____.
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inversely related (negative slope).
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6 Determinants of Supply:
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1. Resource Prices.
2. Technology. 3. Taxes and Subsidies. 4. Prices of Other Goods. 5. Producer Expectations. 6. Number of Sellers in the Market. |
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Determinants of Supply
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Factors other than price that determine the quantity supplied of a good or service.
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Determinants of Supply are sometimes called _____ _____ because they can shift the supply curve left or right (increasing or decreasing supply).
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supply shifters
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Higher Resource Prices increase production costs and ultimately...
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reduce supply. (lower profits reduce incentive).
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Improvements in Technology enable production with fewer resources, thus increasing _____ and _____.
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profitability, supply
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An increase in Taxes (costs) will cause a decrease in ______ and _____.
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profitability, supply
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An increase in Subsidies (taxes in reverse) will cause an increase in ______ and ______.
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profitability, supply
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The Prices of Other Goods in relation to what a manufacturer is currently producing can sometimes entice him to...
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manufacture the more profitable items, thus decreasing the supply of the original item.
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Changes in Producer Expectations about the future price of a product may affect...
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his willingness to supply that product.
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Other things equal, the larger the Number of Sellers,...
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the greater the market supply.
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Change in Quantity Supplied
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A movement from one point to another along a fixed supply curve.
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Equilibrium Price
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The price in a competitive market at which the quantity demanded and the quantity supplied are equal. There is neither a shortage nor a surplus, and no tendency for price to change.
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Market Equilibrium
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The intersection of the supply curve with the demand curve.
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Equilibrium Quantity
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The quantity demanded and quantity supplied at the equilibrium price in a competitive market.
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The Equilibrium Price remains constant until...
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either the supply curve, the demand curve, or both shifts.
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Surpluses drive prices _____, and shortages drive prices _____.
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lower, higher
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Rationing Function of Prices
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The ability of market forces in competitive markets to equalize quantity demanded and quantity supplied and to eliminate shortages and surpluses via changes in prices.
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Productive Efficiency
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The production of a good in the least costly way.
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Allocative Efficiency
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Production of the particular mix of goods and services most highly valued by society. (Competitive markets make the assignments).
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If supply is constant and demand increases...
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both price and quantity will increase.
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If demand is constant and supply increases...
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price decreases and quantity increases.
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If supply increases and demand decreases...
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price decreases and demand will change depending on the relative size in shifts of the supply and demand curves.
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If supply decreases and demand increases...
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price will increase and quantity will change depending on the relative size of the shifts in the supply and demand curves.
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If both supply and demand increase...
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quantity will increase and price will change depending on the relative size of the shifts in the supply and demand curves.
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If both supply and demand decrease...
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quantity will decrease and price will change depending on the relative size in shifts of the supply and demand curves.
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Price Ceiling
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A legally established maximum price for a good or service. (i.e. rent controls, usury laws).
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If a Price Ceiling is established (below equilibrium price), a ______ will occur and ______ will be needed.
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shortage, rationing
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When shortages result from price ceilings, _____ _____ will flourish.
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black markets
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Price Floor
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A legally established minimum price above the equilibrium price. (i.e. certain agricultural products, minimum wage).
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If a Price Floor is established (above equilibrium price), a _______ will occur.
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surplus
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Government controlled prices cause ______ or ______.
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shortages, surpluses
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