Econ 101 Ch. 4

Causes of an increase in demand (which shifts the demand curve):

-Increase income -decrease income -increase in price of a substitute good -decrease in price of a complementary good -increase in population -shift in consumer preferences -expectations of higher future prices

Causes of a decrease in demand (which shifts the demand curve)

-decrease in income -increase in income -decrease in the price of a substitute good -increase in the price of a complementary good -decrease in population -shift in consumer tastes -expectations of lower future prices

change in quantity demanded

A change in the quantity consumers are willing and able to buy when the price changes; represented graphically by the movement ALONG the demand curve.

change in quantity supplied

A change in the quantity firms are willing and able to sell when the price changes; represented graphically by movement along the supply curve.

market demand curve

A curve showing the relationship between price and quantity demanded by all consumers, ceteris paribus.

individual supply curve

A curve showing the relationship between price and quantity supplied by a single firm, ceteris paribus.

market supply curve

A curve showing the relationship between the market price and quantity supplied by all firms, ceteris paribus.

individual demand curve

A curve that shows the relationship between the price of a good and quantity demanded by an individual consumer, ceteris paribus.

inferior good

A good for which an increase in income decreases demand.

normal good

A good which an increase in income increases demand.

perfectly competitive market

A market with many sellers and buyers of a homogeneous product and no barriers to entry.

change in demand

A shift of the demand curve caused by a change in a variable other than the price of the product.

change in supply

A shift of the supply curve caused by a change in a variable other than the price of the product.

market equilibrium

A situation in which the quantity demanded equals the quantity supplied at the prevailing market price.

excess supply

A situation in which the quantity supplied exceeds the quantity demanded at the prevailing price.

excess demand

A situation in which, at the prevailing price, the quantity demanded exceeds the quantity supplied.

supply schedule

A table that shows the relationship between the price of a product and quantity supplied, ceteris paribus.

demand schedule

A table that shows the relationship between the price of a product and the quantity demanded, ceteris paribus.

Marginal Principle

Increase the level of an activity as long as its marginal benefit exceeds it marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

quantity demanded

The amount of a product that consumers are willing and able to pay.

quantity supplied

The amount of a product that firms are willing and able to sell.

Law of Demand

There is a negative relationship between price and quantity demanded, ceteris paribus.

Law of Supply

There is a positive relationship between price and quantity supplied, ceteris paribus.

complements

Two goods for which a decrease in the price of one good increases the demand for the other good.

substitutes

Two goods for which an increase in the price of one good increases the demand for the other good.

If the equilibrium price and quantity move the in the same direction, the changes were caused by a change in ______.

demand

When supply changes and the supply curve shifts, price and quantity change in _________ direction.

opposite (When supply increases, the price decreases but the quantity decreases; when supply decreases, the price increases but the quantity decreases).

When demand changes and the demand curve shifts, price and quantity change in the _______ direction.

same (When demand increases, both price and quantity increase; when demand decreases, both decrease).

If the equilibrium price and quantity move in opposite directions, the changes were caused by a change in _____.

supply