AP Econ Chapter 4 Vocab

Competitive Market

A market where the many buyers and sellers have very little market power- each buyer's or seller's effect on market price is negligible. - Little or no control by any buyer or seller over what is produced or how many.

Individual Demand Schedule

Data from graph. A schedule that shows the relationship between price and quantity demanded.

Diminishing Marginal Utility

In a given time period, a buyer will receive less satisfaction from each successive unit consumed. (Enjoyment, satisfaction). This can be used to describe purchasing decisions. - P < Mu = Buy it - P > Mu = Don't buy it -Price remains constant. - Must be given in the same time period. * As utility diminishes, you end up giving into substitution and buying or doing something else.

Factors of Supply

Input prices, price of related goods, expectations, technology, regulations, taxes and subsidies, number of suppliers, and weather.

Law of Demand

Th quantity of a good or service demanded varies inversely (negatively) with its price, ceteris paribus. - The effect on quantity demanded. How prices effect it. - Demand curve is negative sloping.

Law of Supply

The higher (lower) the price of the good, the greater (smaller) the quantity supplies. - Supply is upward sloping. - As price goes up, quantity supplied goes up. - As prices go down, quantity supplied goes down. - Direct relationship.

Market Demand Curve

The horizontal summation of individual demand curves.

Law of Demand Key Points

- The law of demand states that when the price of a good falls (rises), the quantity demanded rises (falls), ceteris paribus. - An individual demand curve is a graphical representation between the price and the quantity demanded. - The market demand curve shows the amount of a good that all buyers in the market would be willing and able to buy at various prices.

Supply Notes

- The law of supply states that the higher (Lower) the price of a good, the greater (smaller) the quantity supplied. - There is a positive relationship between price and quantity supplied because profit opportunities are greater at higher prices and because the higher production costs of increased output means that suppliers will require higher prices. - The markets supply curve is a graphical representation of the amount of goods and services that suppliers are willing and able to supply at various prices.

Factors of Demand

-Price of related goods - Income - Number of Buyers - Tastes (What people like) - Expectaions

Substitution Effect

At higher prices, buyers increasingly substitute other goods for the good that now has a higher relative price. - As prices go up, you substitute for other goods.

Income Effect

At higher prices, the demand for a product decreases due to a reduction in the buyer's purchasing power- the buyer cannot buy as much at the higher prices as at the lower. - As prices go up, you will buy less. - Low purchasing power.

Shifts in Demand

- A change in the quantity demanded describes a movement along a given demand curve in response to a change in the price of the good. - A change in demand shifts the entire curve. An increase in demand shifts the demand curve to the right; a decrease shifts it to the left. - A change in the price of a complement shifts the demand curve for the good in question. The relationship is inverse. - Changes in income cause demand curve shifts. For normal goods the relationship is direct; for inferior goods it is inverse. - The position of the demand curve will vary according to the number of consumers in the market. - Changes in taste will shift the demand curve. - Changes in expected future prices and income can shift the current demand curve.

Supply Factor- Regulations

- An increase in regulation, will decrease supply. - A decrease in regulation, or a relax in regulation, the supply will increase and he market will grow.

Effect of Price of Quantity Demand

- As price increases, quantity demand will go down. - As price decreases, quantity demand will go up. (Inversely related means one goes up and one goes down.)

Supply Factor- Input Prices

- As prices go up, supply goes down. - As prices go down, supply goes up. - Inverse relationship.

Inferior Good

- If income increases, the demand for a good decreases. - If income decreases, the demand for a good increases.

Normal Good

- If income increases, the demand for a good increases. - If income decreases, the demand for good decreases.

Demand Factor- Number of Buyers

- If number of buyers increase, then the demand increases. - If number of buyers decrease, the the demand decreases.

Supply Factor- Expectations

- If producers expect a higher price in the future, they will supply less now. - If producers expect a lower price in the future, they will supply more now.

Supply Factor- Weather

- If you have frost, it will decrease the supply of oranges. - If you have beautiful weather, it will increase the supply of oranges

Supply Factor- Number of Suppliers

- Number of suppliers increase, the amount of supply increases. - Number of suppliers decrease, the amount of supply decreases. - Direct relationship

Supply Factor- Taxes and Subsidies

- Subsidies is a reverse tax. - Giving subsidies gives an incentive to do something. - Taxes will decrease the curve and shift it to the left. - Subsidies will increase the curve and shift it to the right.

Change in Quantity Demanded

A change in a good's price leads to a change in quantity demanded, a move along a given demand curve.

What is the only factor that can cause a change in quantity demanded?

A change in prices.

Market Supply Curve

A graphical representation of the amount of goods and services that suppliers are willing and able to supply at various prices.

Individual Demand Curve

A graphical representation that shows the inverse relationship between price and quantity demanded.

Individual Supply Curve

A graphical representation that shows the positive relationship between the price and quantity supplied.

Substitutes

An increase (Decrease) in the price of one good causes the demand curve for another good to shift to the right (left). - As price of Good A goes up, demand for Good B goes up. - As price of Good A goes down, demand for Good B goes down.

Complements

An increase (decrease) in the price of one good shifts the demand curve for another good to the left (right).

Supply Factor- Technology

An increase in technology will make it cheaper to make goods, so the curve will shift out.

Change in Demand

The prices of related goods, income, number of buyers, tastes, and expectations can change the demand for a good; that is, a change in one of these factors shifts the entire demand curve.

Market

The process of buyers and sellers exchanging goods and services. -Consist of buyers and sellers exchanging goods and services with one another. - Can be regional, national, or global. - Buyers determine the demand side of the market and sellers determine the supply side of the market. - Doesn't need to be a physical location to be considered one.