Economics chapter 3

What is the difference between a change in supply and a change in quantity supplied?

-change in quantity supplied: movement along given supply curve in response to a change in the price of the good in question -change in supply: shifts the entire supply curve; increase in supply shifts the supply curve to the right; a decrease shifts it to the left

change in supply

-shift in supply curve will influence both equilibrium price and equilibrium quantity

change in demand

-shift in the demand curve-caused by a change in the price of a related good, income, the number of buyers, tastes, or expectations- results in a change in both equilibrium price and equilibrium quantity

What are the determinants of supply?

1. input prices 2. prices of related products 3. expectations 4. number of suppliers 5. technology 6. regulation 7. taxes and subsidies 8. weather -factors create a change in supply for a good; shifts entire supply curve

What are the determinants of demand?

1. prices of related goods 2. income 3. number of buyers 4. tastes 5. expectation

What is the difference between a change in demand and a change in quantity demanded?

A change in demand shifts the entire demand curve. An increase in demanded shifts the demand curve to the right; a decrease shifts it to the left

What is an individual demand curve?

An individual demand curve is a graphical representation of the relationship between the price and the quantity demanded

What is an indeterminate solution?

When simultaneous shifts occur in both supply and demand curves, either the equilibrium price of the equilibrium quantity will be indeterminate without more information.

What happens to equilibrium price and quantity when the demand curve shifts? What happens when the supply curve shifts?

Shifts in demand or the supply curve will cause a corresponding change in the equilibrium price and/or quantity, ceteris peribus

What happens when both supply and demand shift in the same time period?

Supply and demand curves can shift simultaneously in response to changes in both supply and demand determinants

What are surpluses and shortages?

Surplus: occurs when quantity supplied exceeds quantity demanded Shortage: occurs when quantity demanded exceeds quantity supplied

What is market equilibrium?

The intersection of the supply and demand curves shows the equilibrium price and equilibrium quantity in a market. This point is the market equilibrium point

What is the law of demand?

The law of demand states that when the price of a good falls (rises), the quantity demanded rises (falls), ceteris peribus

What is a market demand curve?

The market demand curve is the amount of a good that all buyers in the market would be willing and able to buy at various prices

inferior good

a good for which demand decreases if income decreases and demand increases if income decreases

normal good

a good for which demand increases if income increases and demand decreases if income decreases

What is the market supply curve?

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

What is an individual supply curve?

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

competitive market

a market in which the many buyers and sellers have little market power--each buyer's or seller's effect on market price is negligible

individual demand schedule

a schedule that shows the relationship between price and quantity demanded

individual supply schedule

a schedule that shows the relationship between price and quantity supplied

Who determines the demand and supply sides of the market?

buyers determine the demand side of the market and sellers determine the supply side of the market

What is the law of supply?

the higher (lower) the price of a good, the greater (smaller) the quantity supplied

market demand curve

the horizontal summation of individual demand curves

equilibrium price

the price at the intersection of the market supply and demand curves; at this price, the quantity demanded equals the quantity supplied

equilibrium quantity

the quantity at the intersection of the market supply and demand curves; at the equilibrium quantity, the quantity demanded equals the quantity supplied

complements

two goods are complements if an increase (decrease) in the price of one good shifts the demand curve for another good to the left (right)

substitutes

two goods are substitutes if an increase (decrease) in the price of one good causes the demand curve from another good to shift to the right (left)

changes in equilibrium price and quantity

when one of the many determinants of demand or supply (input prices, prices or related products, number of suppliers, expectations, technology, and so on) changes, the demand and/or supply curve will shift