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16 Cards in this Set
- Front
- Back
What is a demand curve?
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The same thing as a demand schedule (your book uses this term). The curve is derived from the definite relationship between the market price of a good and the quantity demanded of that good (all other things constant). That relationship is called the demand curve.
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What is the law of downward sloping demand?
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When the price of a good increases demand for the good decreases (other things constant).
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Give two reasons the demand curve goes down.
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The substitution effect and the income effect.
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What is the substitution effect?
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It's one of the reasons that demand for a good falls when the price of the good rises. it basically says that if the price of a good rises I will substitute a cheaper similar good instead.
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What is the income effect?
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One of the causes of downward sloping demand. If you have an income of $1 and a good costs $.30 normally, and then the price of the good goes up to $.50 it is the same thing as being $.20 poorer than you were before. Because you are poorer you will reduce your consumption. (47)
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What are the forces behind the demand curve?
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1. The average income of consumers
2. the size of the market 3. the prices and availability of related goods 4. tastes and preferences 5. special influences (48) |
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Describe what happens to the graph when a demand curve shifts
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When the demand curve shifts if physically moves either right (increase in demand) or left (decrease in demand).
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What is the difference between a change in demand and a shift in demand
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a change in demand indicates a different point on the same demand curve. a shift in demand tells you that the whole curve moved left or right because of a change in one of the forces behind a demand curve. (51)
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What is a supply curve?
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The supply curve for a commodity
shows the relationship between its market price and tne amount of that commodity that producers are willing to produce and sell, other things held constant. |
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What is the helpful mnemonic for how the demand and supply curves go together?
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Demand goes down to the ground
supply goes up to the sky (demand down, supply sky) |
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What are the forces behind the supply curve?
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1. Costs of production
2. Prices of related goods 3. Government policy 4. special influcences |
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What are the forces determining the costs of production?
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1. Prices of inputs (such as labor, energy, ingredients or parts)
2. Technological advances |
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What happens when the supply curve shifts?
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The physical curve moves left (for a contraction in supply) or right (for an expansion of supply).
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What is a supply shift?
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A supply shift is when changes in the factors determining the supply curve change and cause supply to expand or contract. This is not the same as a change in price, which is a move along the existing supply curve.
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What is market equilibrium (conceptually and on the graph)
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Conceptually: Market equilibrium occurs when the amount of goods and services demanded is equal to the quantity of goods and services demanded.
On the graph: It's the intersection of teh supply curve with the demand curve. |
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What happens when the forces behind either supply or demand change?
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There is either a shift in the demand curve OR a shift in supply curve (NOT BOTH). This also yields a change in the market equilibrium, market price and market quantity (57).
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