Econ chapter 3
Demand Curve
A graphical representation of demand schedule
Supply curve
A graphical representation of the supply schedule. Positively sloped line showing the direct relationship between price and quantity supplied, all else being equal.
Law of Demand
A negative, or inverse, relationship between the price of any good or serve and the quantity demanded, holding other factors constant (Ceteris Paribus)
Demand
A schedule showing how much of a good or service people will purchase at any price during a specified time period, other things being constant
Inferior goods
Goods for which demand falls as income rises
What are we holding constant in Demand?
Income, tastes and preferences, price of other goods, and many other factors
Supply
Schedule showing relationship between price and quantity supplied for a specified time period, other things being equal. (The amount of a product or service that firms are willing to sell at alternative prices)
Market
All of the arrangements that individuals have for exchanging with one another
Examples of markets
Automobile, Health care, high speed internet access
Ceteris Paribus conditions
Determinants of the relationship between price and quantity that are unchanged along a curve. Changes in these factors cause a curve to shift.
Normal goods
Good for which demand rises as income rises
Money Price
Price we observe in today in today's dollars (Absolute, or nominal price)
Demand schedule
Table relating prices to quantities demanded
Market Demand
The demand of all consumers in the marketplace for a particular good or service, and summation at each price of the quantity demanded by each individual.
Law of supply
The higher the price of a good, the more of that good sellers will make available over a specified time period, other things being equal.
Relative price
The price of commodity in terms of another commodity
Equilibrium price
The price that clears the market, quantity demanded equals quantity supplied, and where the demand curve intersects the supply curve.
Shortages
The situation when quantity demanded is greater than quantity supplied, and exist at any price below the market clearing price.
Surpluses
The situation when quantity supplied is greater than quantity demanded, and exist at any price above the market clearing price.
Complements
Two goods are complements when a change in the price of one causes an opposite shift in the demand curve for the other
Substitutes
When a change in the price of one good causes a shift in demand for the other in the same direction as the price change.
Changes in supply versus changes in quantity supplied
Whenever there is a change in a ceteris paribus condition, there will be a change in supply. (A shift of the entire supply curve to the right or to the left)
Changes in demand versus changes in quantity demanded
Whenever there is change in a ceteris paribus condition, there will be a change in demand (A shift of the entire demand curve to the right or to the left)