ECOn 2015 - Ch. 3

Nonprice factors of supply

Production Technology Costs of resources Prices of other commodities Expectations Number of Sellers Taxes and Subsidies

Demand Curve

negative relationship between price (P) and quantity (Q)

Price of Substitutes

price increase of good A will increase demand for good B

Supply

the maximum amount of a product that sellers are willing and able to provide over some time period at various prices (ceteris paribus)

Equilibrium Quantity

the output where Qs = Qd

Equilibrium Price

the price where Qs = Qd

Tastes ad Preferences

demand will increase for products that come into "fashion"

Market Equilibrium

occurs when quantity supplied equals quantity demanded (Qs = Qd)

Number of buyers

as more consumers enter a market, demand increases

As airlines increase the number of premium seats for sale (all else equal), what happens to equilibrium price and quantity for premium seat tickets? a. Price increases, quantity increases b. Price decreases, quantity increases c. Price increases, quantity decreases d. Price decreases, quantity decreases.

b. Price decreases, quantity increases

Memory chips, a key component in portable hard drives, have fallen in price. What happens to the supply of portable hard drives? a. Supply does not change b. Supply shifts to the right c. Supply shifts to the left d. Supply initially shifts to the right, and then to the left

b. Supply shifts to the right

Market Demand

Horizontal summation of all individual demand curves

Buyers

What to buy? How much?

Law of Supply

A prices rise, providers want to sell more to maximize profits

Law of Demand

As price increases, quantity demanded falls As price decreases, quantity demanded increases

Change in Demand vs. Change in Quantity Demanded

Change in Demand - shift of line (same price) Change in Quantity Demanded - shift along line (new price)

Change in Supply vs. Change in Quantity Supplied

Change in Supply - shift of curve Change in Quantity Supplied - shift along curve

Inferior goods

Demand decreases as incomes rise

Price of Complements

Goods that are typically consumed together. If the price of a complement decreases, the demand for the original good increases (and vice versa)

Horizontal Summation

Market demand and supply curves are found by adding together how many units of the product will be purchased/supplied at each price

The price system

Market economies use prices to allocate resources, goods, and services

Supply Curve

Positive relationship between price (P) and quantity (Q)

Demand

The maximum amount of a product that buyers are willing to purchase over some time period at various prices (ceteris paribus)

Sellers

What to sell? How much? Method?

Surplus

When prices are too high and demand is less

Shortage

When prices are too low and demand is too high

What shifts the demand curve?

an increase/decrease in demand - consumers buy more/less at every price level, or consumers are willing to pay more/less

Determinants of Demand - nonprice factors

affect demand and are held constant when drawing a demand curve includes: tastes and preferences income prices of related goods: substitutes and complements number of buyers expectations about future prices

Markets

an Institution that brings buyers and sellers together

Which of the following would not shift the demand for orange juice? a. Consumer incomes rise b. Price of apple juice, a substitute, falls c. New research showing the benefits of orange juice d. Level of government subsidies to farmers rise e. an overall rise in the population

d. Level of government subsidies to farmers rise

Elasticity

decreases with increased substitutes increases with less subsitutes

Normal Goods

demand increases as incomes rise

Market Supply Curve

horizontal summation of all individual supply curves