Intro To Macroeconomics Chapter 3

Front 1

demand curve

Back 1

- shows the quantity of a good that buyers wish to buy and are able to buy at each price
- a buyer's reservation price at every quantity

Front 2

substitution effect

Back 2

- as the price of one good goes up, people substitute another good for it
- causes the downward slope because increase in price = decrease in purchases

Front 3

income effect

Back 3

- people still buy the good (no substitution), but they cannot buy as much since their income can only support a certain amount

Front 4

change in quantity demanded

Back 4

- movement along the curve
- caused by a change in price ONLY

Front 5

change in demand

Back 5

- shift of the entire demand curve
- caused by anything EXCEPT for price

Front 6

normal good

Back 6

- as income increases, they buy more of this good

Front 7

inferior good

Back 7

- as income increases, they buy less of this good

Front 8

buyer's reservation price

Back 8

- the maximum a buyer will pay for a certain quantity of a good

Front 9

supply curve

Back 9

- shows the quantity of goods that sellers are able to sell and wish to sell at each possible price
- a seller's reservation price at every quantity

Front 10

change in quantity supplied

Back 10

- movement along the curve
- change occurs because of price ONLY

Front 11

change in supply

Back 11

- shift in the supply curve
- caused by anything EXCEPT for price

Front 12

seller's reservation price

Back 12

- the lowest price they are willing to sell a quantity of goods for

Front 13

buyer's surplus

Back 13

- the difference between the buyer's reservation price and the market price

Front 14

seller's surplus

Back 14

- the difference between the market price and the seller's reservation price

Front 15

total surplus

Back 15

- the difference between the buyer's and the seller's reservation prices