AP Economics (Modules 5, 6, 7)

Normal Good

A good for which, other things being equal, an increase in income leads to an increase in demand

Inferior Good

A good for which, other things equal, an increase in income leads to a decrease in demand

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded. -Downward-sloping line that graphically shows the quantities demanded at each possible price.

Law of Demand

Consumers will buy more of a good when its price is lower and less when its price is higher. -Inversely Proportional

Input

Resources that go into producing a product

Change In Supply

A change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right.

Supply Schedule

A chart that lists how much of a good a supplier will offer at different prices. -Lists how much of a good or service an individual producer is willing and able to offer for sale at each price.

Supply Curve

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

Simultaneous Shifts of Supply and Demand Curves

-When Demand increases and Supply decreases, the equilibrium price rises but the change in the equilibrium quantity is ambiguous -When Demand decreases and Supply increases, the equilibrium price falls but the change in the equilibrium quantity is ambiguous -When both Demand and Supply increase, the equilibrium quantity rises but the change in the equilibrium price is ambiguous -When both Demand and Supply decrease, the equilibrium quantity falls but the change in the equilibrium price is ambiguous

Competitive Market

A market composed of many buyers and sellers acting independently, none of whom has any market power. -A market with a large number of buyers and of sellers, such that no single buyer or seller is able to influence the price or any other aspect of the market -- no one has any market control.

Movement Along the Demand Curve

A movement that occurs when consumers change the amount of a good or service they desire, associated with a change in price.

Demand Schedule

A table that lists the various quantities of a product or service that someone is willing to buy over a range of possible prices.

Supply and Demand Model

Five key elements: 1) The Demand Curve 2) The Supply Curve 3) The set of factors that cause the demand curve to shift and the set of factors that cause the supply curve to shift 4) The Market Equilibrium, which includes the equilibrium price and equilibrium quantity 5) The way the market equilibrium changes when the supply curve or demand curve shifts

Shifts of the Demand Curve

Five principal factors that shift the Demand Curve: 1) Changes in the Price of Related Goods 2) Changes in Income 3) Changes in Tastes 4) Changes in Expectations 5) Changes in the Number of Consumers Acronym: T.R.I.B.E (tastes, related goods or services, income, buyers, expectations)

Law of Supply

Holding all else equal, when the price of a good rises, suppliers increase their quantity supplied for that good

Individual Demand Curve

Illustrates the relationship between quantity demanded and price for an individual consumer

Individual Supply Curve (*)

Illustrates the relationship between quantity supplied and price for an individual producer

Movement Along the Supply Curve

Shifts of the Supply Curve for a good or service are mainly the result of five factors: 1) Changes in Input Prices 2) Changes in the Prices of Related Goods or Services 3) Changes in Technology (enables producers to spend less on inputs and still produce the same outputs) 4) Changes in Expectations 5) Changes in the Number of Producers

Quantity Supplied

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

Quantity Demanded

The amount of a good or service that a consumer is willing and able to purchase at a given price

Equilibrium Quantity

The amount of output that results in no shortage or surplus, the amount of goods and service bought and sold in the economy -The quantity at which the quantity demanded is equal to the quantity supplied

Equilibrium

The point at which quantity demanded and quantity supplied are equal

Equilibrium Price

The price at which the amount of goods producers supply meets the amount of goods consumers demand. -The price at which the quantity demanded is equal to the quantity supplied

Market-Clearing Price

The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the Equilibrium Price.

Input Price

The price of a good that is used in the production of something else. When an input price into the production of good X goes up, the supply of good X contracts; when an input price into the production of good X goes down, the supply of good X expands

Shortage

There is a shortage of a good or service when the quantity demanded exceeds the quantity supplied. -Shortages occur when the price is below its equilibrium level.

Surplus

There is a surplus of a good or service when the quantity supplied exceeds the quantity demanded. -Surpluses occur when the price is above its equilibrium level.

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other -Two goods that are bought and used together

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other -Goods and services that can be used for the same purpose.