Macro. ch. 3

ceteris paribus

- a market in equilibrium remains in equilibrium -"all else equal"

5 variables that influence supply:

1. Input prices 2. technology 3. prices of substitutes in production 4. Number of firms in market 5. expected future prices.

Inferior Good

A good for which the demand increases as income falls and decreases as income rises.

Normal Good

A good for which the demand increases as income rises and decreases as income falls

Competitive Market Equilibrium

A market equilibrium with many buyers and many sellers. -All consumers are willing and able to pay the equilibrium will be able to buy as much of the product as they want and all firms willing and able to accept the equilibrium price will be able to sell as much of the product as they want, so no reason for price to change. -ceteris paribus -if there is a change, then the market will move to a new equilibrium.

Prices of substitutes in production

Alternative products that a firm could produce are called substitutes in production -price of substitute in production decreases (shifts right) price of subs, in production increases (shifts left) -substitute = consumption and demand -subs. in production = supply

Complements

Goods and services that are used together. -the more you buy of one, the more you buy of the other -PB&J -EX) the price of X increases, the quantity of X demanded decreases and the demand for Y decreases (shifts left)

Substitutes

Goods and services that can be used for the same purpose. -The more you buy of one, the less you buy of the other -EX) When the price of A increases, the quantity of A demanded decreases and the demand for B increases (shifts right)

Change in demand

If any other demand variable changes, we will shift the demand curve right for an increase in demand or a left for a decrease in demand.

Change in supply

If any other supply variable changes, shift the supply curve for an increase in supply or left for a decrease in supply.

Change in quantity supplied

ONLY when price changes -if the price increases, move up and to the right along a stationary supply curve to a larger quantity supplied; if price decreases move down and to the left along a stationary supply curve to a smaller quantity supplied.

Quantity Supplied

The amount of a good or service that a firm is willing and able to supply at a given price.

Input prices

When input prices rise, supply decreases (shifts left) and when input prices fall, supply increases (shifts right)

Supply Curve

a curve that shows the relationship between the price of a product and the quantity of the product supplied. -each point on a supply curve is a quantity supplied corresponding to a specific price; together, the points represent supply over a range of prices.

Demand Curve

a graph showing how the demand for a commodity or service varies with changes in its price.

Market equilibrium

a situation in which quantity demanded equals quantity supplied. -occurs at the intersection of the market demand and market supply curves for a product

Shortage

a situation in which the quantity demanded is greater than the quantity supplied -Gives firms the ability to raise price without decreasing their sales, which simultaneously increases the quantity supplied and decreases the quantity demanded.

Surplus

a situation in which the quantity supplied is greater than the quantity demanded. -gives firms an incentive to increase their sales by cutting price, which simultaneously increases the quantity demanded and decrease the quantity supplied.

Demand Schedule

a table of the quantity demanded of a good at different price levels.

Supply schedule

a table that shows the relationship between the price of a product and the quantity of the product supplied.

Number of firms in market

firms enter market (shift right), firms exit market (shift left)

Change in quantity demanded

if prices increase, move up and to the left along a stationary demand curve to a smaller quantity demanded; if price decreases, move down and to the right along a stationary demand curve to a larger quantity demanded.

Expected future prices

sellers expect future price to decrease (supply increases, shift right), sellers expect future price to increase (supply decrease, shift left)

Law of Demand

states that other factors being constant (cetris peribus), price and quantity demand of any good and service are inversely related to each other. When the price of a product increases, the demand for the same product will fall.

Technology

tech. improves (shifts right)

Demographics

the characteristics of a population with respect to age, race, and gender. -as demographics change the demand for particular produce will increase or decrease because different categories of people tend to have different preferences.

Quantity Demanded

the quantity of a commodity that people are willing to buy at a particular price at a particular point of time.

Law of Supply

the rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

Market Demand

the total of what everybody in the market wants. Businesses often spend a considerable amount of money in order to determine the amount of demand that the public has for its products and services.