IB Economics ch 2

STUDY
PLAY

Terms in this set (...)

Demand
Consumer's willingness to pay a specific price for a good or service
Supply
Producer's willingness to produce a certain amount for a certain price
Law of Demand
As the price of a product increases, the QUANTITY DEMANDED decreases and vice versa. Indirect relationship.
Law of Supply
As the price of a product increases, the QUANTITY SUPPLIED also increases. Direct relationship.
Individual demand vs. Market demand
Individual person or firm vs. total market
Non-price determinants of demand
Income (inferior goods), tastes, price of substitutes and complimentary goods, population
Non-price determinants of supply
costs of factors of production (CELL), technology, competitive supply (ex. farmer switched production because price of another product went up), joint supply (made together), taxes and subsides, number of firms, shocks
Shifts vs. Movements along the demand curve
A shift occurs when the price remains the same but the quantity demanded changes. Movement occurs when the price changes.
Shifts vs. movements along the supply curve
A shift occurs when the price remains the same but the quantity supplied changes. Movement occurs when the price changes.
market supply curve
Shows direct relationship between price and quantity
vertical supply curve
Depicts a fixed amount of a certain good
Revenue= price X quantity
:)
Market equilibrium
quantity demand = quantity supplied
shortage
Qd>Qs
surplus
Qs>Qd
Allocative efficiency
getting the most amount of goods for the lowest cost. marginal benefit = marginal cost
As the demand for a good increases, a temporary shortage occurs. producers raise the price as an incentive to produce more
the invisible hand
Marginal benefit
benefit from each additional unit or increment
marginal cost
cost from each additional unit or increment
Qd=a-bp (indirect)
Qs=c+dp
a and c = quantity demanded at the price of 0
b and d = amount quantity will change as price changes
P= price of good
If a or c changes there is a shift. If b or d changes there is a change in slope.