Econ 130 - Chapter 3: Demand and Supply
Terms in this set (39)
All of the arrangements that individuals have for exchanging with one another.
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.
Law of Demand
Ⓐ The observation that there is a negative, or inverse, relationship between the price of any good or service and the quantity demanded, holding other factors constant.
Ⓑ When the price of a good goes up, people buy less of it, other things being equal. When the price of a good goes down, people buy more of it, other things being equal.
The money price of one commodity divided by the money price of another commodity; the number of units of one commodity that must be sacrificed to purchase one unit of another commodity.
The price expressed in today's dollars; also called absolute or nominal price.
Schedule of alternative quantities demanded per year at different possible prices.
A graphical representation of the demand schedule; it is a negatively sloped line showing the inverse relationship between the price and the quantity demanded.
The demand of all consumers in the marketplace for particular good or service. The summation at each price of the quantity demanded by each individual.
Ceteris paribus conditions
Determinants of the relationship between price and quantity that are unchanged along the curve. Changes in these factors cause the curve to shift.
Shifts in Demand (Ceteris Paribus conditions):
Ⓑ Tastes & Preferences
Ⓒ Prices of Related Goods
Ⓓ Future Expectations
Ⓔ Market Size
Ceteris Paribus Condition of Demand: Income
Factors other than the price of the good that affect the amount demanded. Shift in demand is dependent on whether the good in question is a normal good or an inferior good.
Goods for which the demand rises when consumer income rises.
Goods for which the demand falls when consumer income rises.
Ceteris Paribus Condition of Demand: Tastes & Preferences
Shift in demand to the right, increase, when consumers "like" a particular good or service. Shift in demand to the left, decrease, when consumers "dislike" a good or service.
Ceteris Paribus Condition of Demand: Prices of Related Goods
Related goods are goods for which demand is interdependent. If a change in the price of one good shifts demand for the another good, those two goods have interdependent demands.
Two types of interdependencies:
When a change in the price of one good causes a shift in demand for the other in the same direction as the price change.
When a change in price of one good causes an opposite shift in the demand for the other.
Ceteris Paribus Condition of Demand: Price Expectations
Consumers' expectations regarding future prices and future incomes will prompt them to buy more or less of a particular good without a change in its current money price. Future prices increase: demand today increases. Future prices decrease: demand today decreases.
Ceteris Paribus Condition of Demand: Market Size
Number of potential buyers in the market. An increase in the number of potential buyers causes an increase in demand; shifting the curve right. A decrease in the number of potential buyers causes a decrease in demand; shifting the curve left.
Changes in Demand
A change in any of the Ceteris Paribus conditions of demand leads to a change in demand. This causes a SHIFT in demand curve.
Changes in Quantity Demanded
A change in a good's own price leads to a change in quantity demanded for any given demand curve, other things held constant. This results in MOVEMENT ALONG the demand curve.
A schedule showing the relationship between price and quantity supplied for specified period of time, other things being equal.
The Law of Supply
The observation that the higher the price of a good, the more of that good sellers will make available over a specified time period, other things being equal.
At higher prices, a larger quantity will generally be supplied then at lower prices. At lower prices, a smaller quantity will generally be supplied then at higher prices.
The Supply Schedule
A table relating prices to the quantity supplied at each price; a set of planned production rates that depends on the price of the product.
The graphical representation of the supply schedule; a line (curve) showing the supply schedule, which generally slopes upward (positive slope), other things being equal.
Market supply curve
Some of the individual producers supply curves.
Shifts in Supply (Ceteris Paribus conditions):
Ⓐ Technology & Productivity
Ⓑ Input Prices
Ⓒ Price Expectations
Ⓓ Taxes & Subsidies
Ⓔ Number of Firms in the Industry
Ceteris Paribus condition of Supply: Technology & Productivity
When new production techniques are available, or otherwise change, the supply curve will shift.
Ceteris Paribus condition of Supply: Input Prices
If one or more input prices increases or decreases, production costs rise or fall, and the supply curve will shift left (increase) or right (decrease).
Ceteris Paribus condition of Supply: Price Expectations
A change in the expectation of a future relative price of a product can affect the producers current willingness to supply. If prices increase tomorrow, producers will supply less today and more tomorrow. If prices decrease tomorrow, producers will supply more today and less tomorrow.
Ceteris Paribus condition of Supply: Taxes & Subsidies
Certain taxes, such as a per-unit tax, are effectively an addition to production costs and therefore reduce supply. A per-unit subsidy, a payment to a producer from the government, is a deduction in the producer's production cost and would therefore increase supply.
Ceteris Paribus condition of Supply: Number of Firms in the Industry
If the number of firms, in a specific industry, increases then supply increases and the supply curve shifts right. If the number of friends, and a specific industry, and decreases then supply decreases and the supply curve shifts left.
Changes in supply
A change in any ceteris paribus conditions for supply leads to a change in supply. This causes a shift in the supply curve.
Changes and quantity supplied
A change in price leads to a change in the quantity supplied, other things being equal. This is a movement along the curve.
Excess in quantity supplied.
Excess in quantity demanded.
The situation when quantity supplied equals quantity demanded of a particular price. The stable point for price and quantity.
Market clearing or equilibrium price
The price that clears the market, I would quantity demanded equals quantity supplied; the price where the demand curve intersects the supply curve.
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