micro chapter 3 terms - demand and supply
supply schedule
lists the quantities supplied at each price
STEPS TO SOLVE S&D PROBLEMS
1. draw diagrams for each factor being affected 2. determine if the factors affect S or D curve 3. determine if the factors increase or decrease S & D (left of right shift) 4. in one diagram, draw a big D shift & small S shift. in the other diagram, draw a small D shift and big S shift (if evaluating more than one factor)
factors that shift the demand curve
1. the price of related goods (substitutes & complements) 2. Expected future prices (like sales) 3. income 4. expected future income and credit 5. population 6. Preferences
factors that shift the supply curve
1. the prices of factors of production 2. the prices of related goods produced 3. expected future prices 4. the number of suppliers 5. technology 6. state of nature
change in demand
A change in buyers' plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift of the demand curve. (moves the demand curve rightward or leftward)
change in quantity demanded
A change in buyers' plans that occurs when the price of a good changes but all other influences on buyers' plans remain unchanged. It is *illustrated by a movement along the demand curve*
change in supply
A change in sellers' plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift of the supply curve.
change in quantity supplied
A change in sellers' plans that occurs when the price of a good changes but all other influences on sellers' plans remain unchanged. It is illustrated by a movement along the supply curve.
supply curve
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
2. Explain why a relative price is an opportunity cost.
A relative price is an opportunity cost because the relative price is the *ratio* of the price for one good or service to the price of another good or service-which is the definition of an opportunity cost.
relative price
the ratio of the price of one good or service to the price of another good or service the opportunity cost
law of supply
Other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied
law of demand
Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and the lower the price of a good, the greater is the quantity demanded
inferior good
a good for which demand decreases when income increases ex: long distance bus transportation decreases
normal good
a good for which demand increases as income increases ex: air travel increases
substitute
a good that can be used in place of another good
complement
a good that is used in conjunction with another good.
competitive market
a market that has many buyers and many sellers, so no single buyer or seller can influence the price
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
movement along the demand curve
change in price of the product
preferences
determine the value that people place on each good and service
A surplus forces the price
down
3. Think of examples of goods whose relative price had risen or fallen by a large amount.
gasoline; college tuition; food
A Change in the Quantity Demanded Versus a Change in Demand
graph
as the price increases the demand for substitutes
increases
1. What is the distinction between a money price and relative price?
money price is the amount of dollars spent on an item. relative price is the opportunity cost, or the ratio, of having one item over another.
quantitiy demanded
refers to a point on a demand curve
a shift in the demand curves shows a
shift in demand
demand curve
shows the relationship between the quantity demanded of a good and its price
relative prices
supply & demand model determines
quantity demanded
the amount of a good or service that consumers are plan to buy during a given times period at a particular price measured as an amount per unit of time
quantity supplied
the amount of a good or service that producers plan to sell during a given time period at a particular price refers to a point on a supply curve
marginal cost
the cost of producing one more unit of a good
demand
the entire relationship between the price of a good and the quantity demanded of that good
supply
the entire relationship between the price of a good and the quantity supplied of it when all other influences on producers' planned sales remain the same. It is described by a supply schedule and illustrated by a supply curve.
opportunity cost
the highest-valued alternative forgone
money price
the number of dollars that must be given up in exchange for a good or service
equilibrium price
the price at which the quantity demanded equals the quantity supplied
equilibrium quantity
the quantity bought and sold at the equilibrium
wants
the unlimited desires or wishes that people have for goods and services
marginal benefit
the willingness and ability to pay is a measure of
Shortage forces the price
up
resources and technology
what limits supply?