Chapters 3-4 (Quiz 2)
Terms in this set (33)
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.
--> At a higher price, consumers will buy fewer units of an item.
An arrangement for conducting exchanges and determining prices.
The money price of one item divided by the money price of another item.
The price expressed in units of other items.
The price expressed in today's dollars.
AKA absolute nominal price.
A graphical representation of the demand schedule. It is a negatively sloped line showing the inverse relationship between the price and the quantity demanded (other things being equal).
The demand of all consumers in the marketplace for a particular good or service.
--> The summation of quantities demanded by all buyers at each feasible price.
Ceteris Paribus Conditions
Determinants of the relationship between price and quantity that are unchanged along a curve. Changes in these factors cause the curve to shift.
Goods for which demand rises as income rises.
Rise in income causes an increase in the amount demanded at every possible price. (Rightward shift of the demand curve)
Most goods are normal goods.
Goods for which demand falls as income rises.
Causes a left hand shift of the demand curve.
At a higher price, consumers will buy fewer units of an item.
At a lower price, consumers will buy more units of an item.
Things that shift the Demand curve
1. Rise in income
2. Taste and Preferences
3. Prices of related goods
4. Number of buyers in the market
5. Changes in expectations
6. Government makes grants to consumers to buy item
Two goods are ____ when a change in the price of one causes an opposite shift in the demand for the other.
Two goods are ____ when a change in the price of one causes a shift in demand for the other in the same direction as the price change.
Change/Shift of Demand Curve
Movement of the entire demand curve.
The only thing that can cause the entire curve to move is a change in a determinant other than the good's own price.
Movement Along the Demand Curve
A change in a good's own price leads to a change in quantity demanded for any given demand curve, other things constant.
Shift of the Demand Curve
A change in any of the ceteris paribus conditions for demand leads to a change in demand.
Law of Supply
The observation that at a higher price, sellers will supply more units of an item. At a lower price, sellers will supply fewer units of an item.
The graphical representation of the supply schedule, a line (curve) showing the supply schedule, which generally slopes upward (has a positive slope), other things being equal.
Things that shift the Supply curve
1. Change in cost of inputs used to produce item
2. Technology and productivity of inputs
3. Taxes and Subsidies
4. Change in the number of sellers
5. Change in expectations of future prices
A negative tax; a payment to a producer from the government, usually in the form of cash grant per unit.
Movement Along the Supply Curve
A change in price leads to a change in the quantity supplied, other things being constant.
Shift of the Supply Curve
A change in any ceteris paribus condition for supply leads to a change in supply.
Market Clearing or Equilibrium Price
The price that clears the market, at which quantity demanded equals quantity supplied; The price where the demand curve intersects the supply curve.
The situation when the quantity supplied equals quantity demanded at a particular price.
A situation in which quantity demanded is greater than quantity supplied at a price below the market clearing price. AKA excess in quantity demanded
A situation in which quantity supplied is greater than quantity demanded at a price above the market clearing price. AKA excess quantity supplied
A legal maximum price that may be charged for a particular good or service.
A legal minimum price below which a good or service may not be sold. Legal minimum wages are an example.
Government-mandated minimum or maximum prices that may be charged for goods and services.
An economic system in which relative prices are constantly changing to reflect changes in supply and demand for different commodities. The prices of those commodities are signals to everyone within the system as to what is relatively scarce and what is relatively abundant.
An act of trading, done on a mutually agreed basis, in which both parties to the trade expect to be better off after the exchange.
All of the costs associated with exchange, including the informational costs of finding out the price and quality, service record, and durability of a product, plus the cost of contracting and enforcing the contract.