Econ Week 3 (supply & demand)

inferior good

INVERSE relationship between the demand for the good and income. ie. Income decreases then demand increases ex. ramen

An increase in Ashley's income has caused the change in the graph below (demand shifted left) The good depicted must be: D2 <--------D1

QD decreases as ahsleys income increased so inferior

when price changes:

QUANTITY demanded changes

subsidy

payment made by the government that does not necessarily require an exchange of economic activity in return. Subsidies most often take the form of payments to businesses. ex. farms

tax

payment made to government that is the result of economic activity. Taxes are generally collected from both individuals and firms.

When the price of strawberries is high in the winter you purchase apples, but in the summer when the price of strawberries drops you purchase strawberries.

substitution effect

price is determined by the tug of war between

supply and demand

diminishing marginal utility

the more of a good you consume the lower the satisfaction unit "negative relationship btwn Q and marginal utility with each additional unit consumed"

the 3 reason demand slopes down?

1. income effect 2. diminishing marginal utility 3. substitute effect

non price determinants of supply include:

1.subsidies 2.taxes 3.resources costs 4.technology 5.price expectations 6. # sellers

Suppose you have only $20 to spend on gasoline each week. If the price of gasoline is $2 a gallon how many gallons can you purchase?

10 gallons

Now suppose the price of gasoline rises from $2 per gallon to $4 per gallon. You still have $20 to spend on gas each week, but now how many gallons can you purchase?

5 gallons *income effect

complements

Goods, services, or resources that are used or consumed with one another. ex. Peanut butter price rises, the demand for jelly decreases

substitutes

Goods, services, or resources that are viewed as replacements for one another. ex. when prices for the bus rise, the demand for the subway rises ex. coke vs pepsi

Which of the following scenarios will not cause an increase in supply?

The price of the product decreases

normal good

DIRECT relationship between the demand for the good and income. ie. when income increases demand increases ex. expensive car

When the Economics Department serves all-you-can-eat ice cream at its annual spring student-recruiting event, you eat three ice cream cones. You really enjoy the first, the second is just okay, and the third is tasteless.

Diminishing Marginal Utility

Demand curves are ______ sloping

Downward

The Market Demand Curve is

Individual Demand Curves Added Together ex. sum up Julia and martins demands

Which of the following describes the relationship between price and quantity supplied?

It is a direct relationship. positive slope

How does market supply differ from individual supply?

Market supply is the sum of all individual suppliers.

substitution effect

The effect that a change in the price of one good, service, or resource has on the demand for another.

technology

The knowledge, inventions, and innovations that can potentially increase resource productivity. ex. fertilizer

Market Demand

The overall or total demand for a good, service, or resource. It represents the summation of individual demand curves, whether they represent individuals, communities, states, or nations.

market supply

add up all the individual firms supplies at the same prices plain ol "supply" = definition of the law of supply for an individual

describe a product for which there is no demand

air people need it yes but it cannot be traded, and it is not scarce therefore there is no demand

The Law of Demand

as the price of a good, service, or resource RISES, the quantity demanded will decrease, and vice versa, all else held constant (when ONLY price is changing). P ^ then QD v

The Law of Supply

as the price of a good, service, or resource rises, the quantity supplied will increase, and vice versa, all else held constant.

What happens to supply when the price of a good drops from $5 to $3?

change in QUANTITY supplied

An increase in the price of dinners at fancy restaurants would likely cause the demand for babysitters to __________. This is because fancy dinners and babysitting services are likely _____________.

decrease complements

a shift left or right in the demand curve ....

is a change in actual demand

determinants of demand

income

expectations include

income availability future prices

Your parents gave you the $400 you thought you needed to purchase books for the semester. When you realized your books were much cheaper than you thought, you decided to purchase all of the required and recommended books instead of just a few.

income effect

Smaller, fuel efficient SUVs have become very popular. Many customers are trading in existing cars and buying new SUVs. As a result, the supply of used cars will ______ and the price of used cars will ______. Additionally, the demand for new SUVs will ______ and the price of new SUVs will ______.

increase decrease increase increase

Other things remaining the same, an increase in the price of beach front condos:

increases the quantity supplied

who sets prices?

interaction of buyers AND sellers

demand has what kind of relationship

inverse negative slope

what is: mechanism by which, buyers and sellers interact to trade goods, services, or resources.

market not necessarily a physical thing ex. stock market

Suppose you are watching the nightly news and you hear a reporter say this: "In the wake of the recent hurricane, gas prices increased by almost 50 cents per gallon, and consumers have responded by significantly decreasing their demand for gas." Is the news reporter using the word "demand" the same way an economist would? Explain.

no it is a change in quantity demanded bc prices changed

supply curve is _____ sloping

upward

income effect

when a change in your income changes your demand for a good or service