(Microeconomics) Supply and Demand Study Guide- Jaren Katz

Which of the following will occur if consumers expect the price of a good to fall in the coming months? a) The quantity demanded will rise today b) The quantity demanded will remain the same today c) Demand will increase today d) Demand will decrease today e) No change will occur today

a) The quantity demanded will rise today

What is the difference between inferior and normal goods?

. Normal Goods - As income increases, demand increases - As income falls, demand falls - Ex: Luxury cars, Sea Food, jewelry, homes Inferior Goods - As income increases, demand falls - As income falls, demand increases - Ex: Top Romen, used cars, used clothes

What 5 factors shift the demand curve?

1) Changes in the prices of related goods or services 2) Changes in income 3) Changes in tastes 4) Changes in Expectations 5) Changes in the number of consumers

What are two examples of substitutes?

1) Coca-Cola vs. Pepsi 2) Contacts vs. Eyeglasses

What are two examples of compliments?

1) Hotdogs and Hotdog Buns 2) DVD players and DVD's

What 6 factors shift the supply curve?

1) Prices/Availability of inputs(resources) 2) Changes in the prices of related goods or services 3) Changes in Technology 4) Government Action: Taxes and Subsidies 5) Changes in the number of sellers 6) Expectations of Future Profit

What is a change in demand?

A change in demand is a shift in the demand curve that changes the quantity demanded at any given price.

What is a competitive market and give an example?

A competitive market is a market in which there are many buyers and sellers of the same good or service. For example the market for Cola beverages.

What is a demand curve and what two things does it connect?

A demand curve is a graphical representation of the demand schedule. It shows the relationship between the quantity demanded and the price of a good or service.

What is a demand schedule?

A demand schedule shows how much of a good or service consumer will be willing and able to buy at different prices.

What is the difference between movements along the supply curve and changes in supply?

A movement along the supply curve is a change in the quantity supplied of a good that is the result of a change in that good's price. A change in supply is a shift of the supply curve, that changes the quantity supplied at any given price.

What is a supply curve?

A supply curve shows the relationship between quantity supplied and price.

What is a supply schedule?

A supply schedule shows how much of a good or service producers will supply at different prices.

What is an individual demand curve?

An individual demand curve illustrates the relationship between quantity demanded and price for an individual consumer.

What is an individual supply curve?

An individual supply curve illustrates the relationship between quantity supplied and price for an individual producer.

What is an input and what are the four basic economic inputs?

An input is anything that is used to produce a good or service. - Land - Labor - Capital - Enterprise

What increases and decreases the supply curve?

Any event that increases supply shifts the supply curve to the right, such as a rise in the quantity supplied at any given price. Any event that decreases the supply shifts the supply curve to the left, such as a fall in the quantity supplied at any given price.

Explain whether each of the following events represents: (i)= a change in demand(shift of the demand curve). (ii)= a movement along the demand curve(a change in the quantity demanded). A. a store owner finds that customers are willing to pay more for umbrellas on rainy days. B. When XYZ telecom, a long distance telephone service provider, offered reduced rates on weekends, its volume of weekend calling increased sharply. C. People buy more long-stem roses the week of Valentine's Day, even though the prices are higher that at other times during the year. D. A sharp rise in the price of gasoline leads many commuters to join carpools in order to reduce their gasoline purchases.

B. When XYZ telecom, a long distance telephone service provider, offered reduced rates on weekends, its volume of weekend calling increased sharply.

What is demand?

Demand is the different quantities of goods that consumers are willing and able to buy at different prices. (Ex: Bill Gates is able to purchase a Ferrari, but if he isn't willing he has NO demand for one).

What is supply?

Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices.

What is the difference between the Substitution and Income effect?

The Substitution Effect: - If the price goes up for a product, consumers buy less of that product and more of another substitute product. The Income Effect: - If the price goes down for a product, the purchasing power increases for consumers - allowing them to purchase more.

How do we find the equilibrium price and quantity?

The easiest way to find the equilibrium price and quantity in a market is by putting the supply curve and the demand curve on the same diagram. Since the supply curve shows the the quantity supplied and the demand curve shows the quantity demanded at any given price, the price at which those two curves cross is the equilibrium price: the price at which the quantity supplied equals quantity demanded.

Why does the Law of Demand occur?

The law of demand is the result of three separate behavior patterns that overlap: 1) The Substitution effect 2) The Income effect 3) The Law of Diminishing Marginal Utility

What is the law of demand?

The law of demand says that a higher price for a good or service causes consumers to demand a smaller quantity of that good or service. - There is an INVERSE relationship between price and quantity demanded. - As Price Falls... Quantity Demanded Rises - As Price Rises...Quantity Demanded Falls

What is the law of supply?

The law of supply says that their is a direct (or positive) relationship between price and quantity supplied. - As price increases, the quantity that producers make increases. - As price falls, the quantity that produces make falls.

What is the quantity supplied?

The quantity supplied is the actual amount of a good or service producers are willing to sell at some specific price.

What is the equilibrium price and what is it also known as?

The price that matches the quantity supplied and demanded is the equilibrium price and it is also known as the market clearing price, because it is the price that "clears the market" by ensuring that every buyer willing to pay that price finds a seller willing to sell at that price.

What is the quantity demanded?

The quantity demanded is the actual amount of a good or service consumer is willing and able to buy at a specific price.

What is the supply and demand model and what are its 5 key elements?

The supply and demand model is a model of how a competitive market works. 1) The demand curve 2) The supply curve 3) The factors that cause the demand and supply curves to shift. 4) The market equilibrium (including equilibrium price/quantity) 5) The way the market equilibrium changes when the supply or demand curves shift.

What is a shortage?

There is a shortage of a good when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level.

What is a surplus?

There is a surplus of a good when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level.

What is the difference between substitutes and compliments?

Two goods are substitutes if a rise in the price of one good leads to an increased demand for the other. Two goods are compliments if a rise in the price of one good leads to a decreased demand for the other.

What happens to the supply curve when new companies start making cereal?

When new companies start making cereal than before, the prices will not change but there is more cereal being produced, causing the supply curve to shift to the right.

What happens to the supply curve when cereal companies find a quicker way to make cereal?

When real companies find a quicker way to make cereal, the change in price does not shift the curve but causes movement along the supply curve.

What happens to the supply curve when a drought destroys corn and wheat crops?

When there is a drought and this causes corn and wheat crops to be destroyed there is a decrease in supply causing the supply curve to shift to the left. - Prices didn't change but there is LESS cereal being produced.

Which of the following will increase the demand for disposable diapers? a) a new "baby boom" b) concern over the environmental effect of landfills c) a decrease in price of cloth diapers d) a move toward earlier potty training of children e) a decrease in the price of disposable diapers

a) a new "baby boom"

If an increase in income leads to a decrease in demand, the good is____________________. a) a compliment b) a substitute c) inferior goods d) abnormal e) normal goods

c) inferior goods

Which of the following would increase demand for a normal good? A decrease in____________________. a) price b) income c) the price of a substitute d) consumer taste for a good e) the price of a compliment

e) the price of a compliment