Economics Study Guide Chapters 3-5
Terms in this set (29)
Quantity demanded is a term used in economics to describe the total amount of goods or services demanded at any given point in time. It depends on the price of a good or service in the marketplace, regardless of whether that market is in equilibrium.
Demand Schedule (chart)
The demand schedule, in economics, is a table of the quantity demanded of a good at different price levels. ... This demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents price and the X-axis represents quantity.
Law of Demand
The law of demand is a microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.
4 Determinates of Household Demand
1) income and wealth
2)Prices of other goods and services
3)Tastes and preferences
In economics, normal goods are any goods for which demand increases when income increases, and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand.
In economics, an inferior good is a good whose quantity demanded decreases when consumer income rises (or quantity demanded rises when consumer income decreases), unlike normal goods, for which the opposite is observed.
Substitute goods are two goods that could be used for the same purpose. If the price of one good increases, then demand for the substitute is likely to rise. Therefore, substitutes have a positive cross elasticity of demand
In economics, a complementary good or complement is a good with a negative cross elasticity of demand, in contrast to a substitute good. This means a good's demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased.
Movements on the Demand Curve
a movement along the demand curve will occur when the price of the good changes and the quantity demanded changes in accordance to the original demand relationship. In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.
Quantity supplied is the amount of a good that sellers are willing to sell and are able to sell. Willingness is generally a function of price.
Law of Supply
The law of supply is a fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied. In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes.
Determinants of Supply
the factors which influence the quantity of a product or service supplied. We have already learned that price is a major factor affecting the willingness and ability to supply. Here we will discuss the determinants of supply other than price.
The Supply Curve
The supply curve is a graphical representation of the relationship between the price of a good or service and the quantity supplied for a given period of time. In a typical representation, the price will appear on the left vertical axis, the quantity supplied on the horizontal axis.
Movement Along a Supply Curve
a movement occurs when a change in quantity supplied is caused only by a change in price, and vice versa. 2. Shifts. A shift in a demand or supply curve occurs when a good's quantity demanded or supplied changes even though price remains the same.
a situation in which the market demand for a commodity is greater than its market supply, thus causing its market price to rise.
Price rationing is a method of rationing that allocates the limited quantities of goods and services using markets and prices. Price rationing works like this. If the quantity of a given commodity becomes increasingly limited, then the price rises.
Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. It has been found that higher price ceilings are ineffective. Price ceiling has been found to be of great importance in the house rent market.
Effects of Price Ceiling
prolonged application of a price ceiling can lead to black marketing and unrest in the supply side.
A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product. A price floor must be higher than the equilibrium price in order to be effective
Effects of Price Floor
Effect on the market. ... Taken together, these effects mean there is now an excess supply (known as a "surplus") of the product in the market to maintain the price floor over the long term. The equilibrium price is determined when the quantity demanded is equal to the quantity supplied.
Mathematical modeling of waiting lines, whether of people, signals, or things. It aims to estimate if the available resources will suffice in meeting the anticipated demand over a given period.
Price protection clause in a supply contract under which the seller cannot offer a lower price to other customers without offering the same price to the contracting customer.
An economic model that seeks to include the cost of negative externalities into the pricing of goods and services.
Elasticity is a measure of a variable's sensitivity to a change in another variable. In business and economics, elasticity refers the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes.
regardless of the amount of a product on the market, the price of the product remains the same. Perfectly inelastic is the opposite of perfectly elastic.
used to describe the situation in which the quantity demanded or supplied of a good or service is unaffected when the price of that good or service changes.
consumers have an infinite ability to switch to alternatives if the price increases, so they would stop buying the good or service in question completely—quantity demanded would fall to zero.
OPEC vs OBEC
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 10-14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. WHERAS BANANA CARTEL COULDNT WORK
Determinants of Demand Elasticity
The first is "Availability of Close Substitutes." The third is "Definition of the Market." Goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to others.