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