Econ chapter 4

shift of a demand curve

movement of a demand curve right or left resulting from a change in one of the determinants of demand other that the price of the good.

Shift of the supply curve

movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good.

market supply

the relation between the price of a good and the quantity all producers are willing and able to sell per period, other things constant.

individual supply

the relation between the price of a good and the quantity an individual produces is willing and able to sell per period, other things constant.

individual demand

the relation between the price of a good and the quantity purchased by an individual consumer per period, other things constant.

market demand

the relation between the quantity purchased by all consumers in the market during a given period, other things constant; sum of the individual demands in the market

quantity supplied

the amount offered for sale per period at a particular price, as reflected by a point on a given supply curve.

• An increase in the money income of consumers (because pizza is a normal good) • An increase in the price of a substitute such as tacos, or a decrease in the price of a complement, such as Coke • A change in consumer expectations that causes people to demand more pizzas now • A growth in the number of pizza consumers • A change in consumer tastes- based for example, on a discovery that tomato sauce on the pizza has antioxidant properties that improve your health.

these could shift the demand for pizza rightward:

Disequilibrium

the condition that exists in a market when the plans of buyers do not match those of sellers; a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium.

equilibrium

the condition that exists in a market when the plans of buyers match those of seller so quantity demanded equals quantity supplied and the market clears.

transaction cost

the costs of time and information required to carry out market exchange....market reduce this

• The state of technology • The prices of resources • The prices of other goods • Producer expectations • The number of producers in the market

Assumed constant along a supply curve are the determinants of supply other the price of the good, including:

price cieling

Price ceiling- a maximum legal price above which a product cannot be sold; to have an impact, a price ceiling must be set below the equilibrium price.

demand

a relation between the price of a good and the quantity that consumers are willing and able to buy per period, other things constant.

supply

a relation between the price of a good and the quantity that producers are willing and able to sell per period, other things constant.

shortage

(excess quantity demanded)- at a given price, the amount by which quantity demanded exceeds quantity supplied; a shortage usually forces the price up.

surplus

(excess quantity supplied)- at a given price the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down.

income effect of price change

A fall in the price of a good increases consumers' real income, marking consumers more able to purchase goods; for a normal good, the quantity demanded increases.

movement along a demand curve

Change in quantity demanded resulting from a change in the price of the good, other things constant.

• A technological breakthrough in pizza ovens • A reduction in the price of a resource such as mozzarella cheese • A decline in the price of another good such as Italian bread • A change in expectations that encourages pizza makers to expand production • An increase in the number of pizzerias.

Changes that could shift the supply curve rightward include:

normal goods inferior goods

Goods are classified into two broad categories:

quantity demanded

The amount of a good that consumers are willing and able to buy per period at a particular price, as reflected by a point on a demand curve.

Law of Supply

The amount of a good that producers are willing and able to sell per period is usually directly related to its price, other things constant.

Money income

The number of dollars a person receives per period, such as $400 per week.

law of demand

The quantity of a good that consumers are willing and able to buy per period relates inversely, or negatively, to the price, other things constant. (Thus, the higher the price, the smaller the quantity demanded; the lower the price, the greater the quantity demanded).

• The money income of customers • Prices of other goods • Consumer expectations • The number or composition of consumers in the market • Consumer tastes

Variable that can affect market demand are:

substitution effect of a price change

When the price of a good falls, that good becomes cheaper compared to other goods so consumers tend to substitute that good for the other good.

supply curve

a curve showing the relation between price of a good and the quantity producers are willing and able to sell per period other things constant.

demand curve

a curve showing the relation between the price of a good and the quantity consumers are willing and able to buy per period, other things constant.

normal goods

a good, such as new clothes, for which demand increases, or shifts rightward, as consumer income rises.

inferior goods

a good, such as used clothes, for which demand decreases, or shifts leftward, as consumer income rises.

price floor

a minimum legal price below which a product cannot be sold; to have an impact, a price floor must be set above the equilibrium price

Movement along a supply curve

change in quantity supplied resulting from a change in the price of the good, other things constant.

real income

income measured in terms of the goods, and service it can buy; real income changes when the price changes.

substitute

goods, such as Coke and Pepsi, that relate in such a way that an increase in the price of one shifts the demand for the other rightward.

complements

goods, such as milk and cookies, that relate in such a way that an increase in the price of one shifts the demand for the other leftward.

tastes

goods, such as milk and cookies, that relate in such a way that an increase in the price of one shifts the demand for the other leftward.