Econ Chapter 3

demand curve

shows the relationship between the quantity demanded of a good and its price when all other influences on Vertical axis - price Horizontal axis - quantity demanded

supply curve

shows the relationship between the quantity supplied of a good and its price when all other influences on producers planned sales remain the same

Prices of Related Goods Produced

- For example, if the price of an energy drink rises, firms switch production from sugary drinks to energy drinks. The supply of sugary drinks decreases - Sugary drinks and energy drinks are substitutes in production—goods that can be produced by using the same resources. - If the price of beef rises, the supply of cow-hide increases. Beef and cowhide are complements in production—goods that must be produced together.

the state of nature

- Good weather can increase the supply of many agricultural products and bad weather can decrease their supply. Extreme natural events such as earthquakes, tornadoes, and hurricanes can also influence supply. - Icy weather early spring - decrease in supply of peaches in summer - Weather and climate

a market move toward its equilibrium because

- Price regulates buying and selling plans - Price adjusts when plans don't match

the prices of related goods

- Substitute is a good that can be used in place of another good. - For example, if the price of an energy drink rises, people buy fewer energy drinks and more energy bars. The demand for energy bars increases. - Complement - is a good that is used in conjunction with another good. - Energy bars and exercise - If the price of an hour at the gym falls, people buy more gym time and more energy bars.

Prices of Factors of Production

- To see this influence, think about the supply curve as a minimum-supply-price curve. If the price of a factor of production rises, the lowest price that a producer is willing to accept for that good rises, so supply decreases. - For example, during 2008, as the price of jet fuel increased, the supply of air travel decreased. Similarly, a rise in the minimum wage decreases the supply of hamburgers.

relative price

- if the price of a good is measured in terms of a quantity of others good It is an opportunity cost example: beanbags per corn hole board -

minimum supply price

- marginal cost - If a small quantity is produced, the lowest price at which someone is willing to sell one more unit is low. But as the quantity produced increases, the marginal cost of each additional unit rises, so the lowest price at which someone is willing to sell an additional unit rises along the supply curve.

a change in supply

- the prices of factors of production - the prices of related goods produced - expected future prices - the number of suppliers - technology the state of nature

quantity demanded

- the total amount of a good or service that consumers PLAN TO BUY DURING A GIVEN TIME PERIOD At a particular price "Plan to buy" - The quantity demanded is not necessarily the same as the quantity actually bought. Sometimes the quantity demanded exceeds the amount of goods available, so the quantity bought is less than the quantity demanded. - refers to a point on a demand curve at a particular price

The money price of a tube of toothpaste is ​$1.25​, and the relative price of a tube of toothpaste in terms of ramen is 2.50 boxes of ramen noodles per tube of toothpaste. What is the money price of a box of ramen noodles​? The money price of a box of ramen noodles is​ _______.

.50 c

The money price of a pound of bananas is ​$0.20 and the money price of a jar of pasta sauce is ​$0.60. The opportunity cost of a jar of pasta sauce is​ _______.

3.00 pounds of bananas​, which is the relative price of a jar of pasta sauce

example of relative price

: relative price of oranges when measured in terms of apples? = number of apples that you had to give up in order to have 1 orange If an orange costs $4 and an apple costs $1 (money prices), what is the relative price of an orange? Number of apples you have to give up to get the price 4 apples per orange

technology

A technology change occurs when a new method is discovered that lowers the cost of producing a good. For example, new methods used in the factories that produce computer chips have lowered the cost and increased the supply of chips. - Marginal costs decrease - Supply increases

demand and supply change in the same direction

If demand increases by more than supply, the price rises If supply increases by more than demand, the price falls

demand

Demand reflects a decision about which wants to satisfy - If you demand something, then you Want to Can afford it Plan to buy it - the entire relationship between the price of the good and the quantity demanded of it when all other influences on buyers plans remain the same

market equilibirum

Equilibrium is a situation in which opposing forces balance each other Equilibrium price is the price at which quantity demanded equals the quantity supplied

supply

If a firm supplies a good or service, the firm - Has the resources and technology to produce it - Can profit from - producing it Plans to produce and sell it - Supply reflects a decision about which technologically feasible items to produce. - refers to the entire relationship between the price of a good and the quantity supplied of it

demand and supply change in opposite directions

If demand changes by more than supply, the equilibrium quantity changes in the same direction as the change in demand. But if supply changes by more than demand, the equilibrium quantity changes in the same direction as the change in supply.

why does a higher price increase quantity supplied?

It is because marginal cost increases

preferences

Preferences determine the value that people place on each good and service. Preferences depend on such things as the weather, information, and fashion.

In a market system, which of the following provides the information that individuals need to make decisions about resource allocation?

Prices

the number of suppliers

The larger the number of firms that produce a good, the greater is the supply of the good. As new firms enter an industry, the supply in that industry increases. As firms leave an industry, the supply in that industry decreases.

population

The larger the population, the greater is the demand for all goods and services; the smaller the population, the smaller is the demand for all goods and services. Also, the larger the proportion of the population in a given age group, the greater is the demand for the goods and services used by that age group.

The market for corn is initially in equilibrium. Suppose that the production of biofuels, which use corn as an input, increase, and at the same time, increases in the price of oil cause farm production costs to rise. Which of the following explains the effect on equilibrium price and quantity in the corn market?

The price of corn will rise, but the effect on equilibrium quantity cannot be determined without more information.

Suppose the price of memory chips used in laptop computers decreases. How will this event impact on the equilibrium quantity and the market price?

The supply increases, causing the equilibrium quantity to rise and the market price to fall. - Recall that price is measured on the vertical axis while quantity is measured from the horizontal axis.

willingness and ability to pay

The willingness and ability to pay is a measure of marginal benefit If a small quantity is available, the highest price that someone is willing and able to pay for one more unit is high. But as the quantity available increases, the marginal benefit of each additional unit falls and the highest price that someone is willing and able to pay also falls along the demand curve

expected future prices

They buy more of the good now before its price is expected to rise (and less afterward), so the demand For example, suppose that a Florida frost damages the season's orange crop. You expect the price of orange juice to rise, so you fill your freezer with enough frozen juice to get you through the next six months. Your current demand for frozen orange juice has increased, and your future demand has decreased.d for the good today increases. - PEople buy less of the good now before its price is expected to fall, so the demand for the good decreases today and increases in the future.

income effect

When a price rises, other things remaining the same, the price rises relative to income. - Faced with a higher price and an unchanged income, people cannot afford to buy all the things they previously bought. They must decrease the quantities demanded of at least some goods and services. - Example: an energy bar initially sells for $3 and then the price doubles to $6. People now buy fewer energy bars and more energy drinks—the substitution effect. And faced with a tighter budget, people buy even fewer energy bars—the income effect. The quantity of energy bars deman

Which of the following represents an inferior good?

When consumer income increases, the demand for bologna decreases.

an increase in demand

When demand increases, the price rises and the quantity increases When demand decreases, the price falls and the quantity decreases

expected future income and credit

When expected future income increases or credit becomes easier to get, demand for a good might increase now For example, a salesperson gets the news that she will receive a big bonus at the end of the year, so she goes into debt and buys a new car right now, rather than waiting until she receives the bonus.

income

When income increases, consumers buy more of most goods; and when income decreases, consumers buy less of most goods. - . As incomes increase, the demand for air travel (a normal good) increases and the demand for long-distance bus trips (an inferior good) decreases.

an increase in supply

When supply increases, the price falls and the quantity increases When supply decreases, the price rises and the quantity decreases

the law of demand

When the price of a good goes up, the quantity demanded goes down When the price of a good goes down, the quantity demanded goes up This is true as long as nothing else changes besides the price of a good

law of supply

When the price of a good goes up, the quantity supplied goes up. When the price goes down, the quantity supply goes down

substitution effect

When the price of a good rises, other things remaining the same, its relative price - its opportunity cost - rises. Although each good is unique, it has substitutes - other goods that can be used in its place As the opportunity cost of a good rises, the incentive to economize on its use and switch to a substitute becomes stronger.

How to find surplus

When the quantity supplied is greater than the quantity demanded, there is a surplus in the market. To calculate the surplus, subtract quantity demanded from quantity supplied. At a price of $65 there are 70 million players a month supplied and only 30 million players per month demanded. The difference (70 - 30 = 40 million players) is the monthly surplus.

inferior good

a good that consumers demand less of when their incomes increase

normal good

a good that consumers demand more of when their incomes increase

what will decrease supply?

a technological change that makes airplanes safer and more fuel-efficient

factors bring change in demand

expected future prices - the prices of related goods - income - expected future income - population - preferences

expected future prices

if the expected future price of a good rises, the return from selling the good in the future increases and is higher than it is today. So supply decreases today and increases in the future

marginal cost

is the lowest price at which someone is willing to sell

equilibrium quantity

is the quantity bought and sold at the equilibrium price

What is the combined quantity demanded at a market price of $4

o arrive at the correct result you have to multiply the number of consumers in each group by the number of units each consumer will purchase at a price of $4. After that you simply sum all the units to reach an overall number of units demanded.

quantity supplied

of a good or service is the amount that producers plan to sell during a given time period at a particular price. The quantity supplied is not necessarily the same amount as the quantity actually sold.

surplus

price above the equilibirum - a surplus forces the price down

shortage

price below the equilibrium a shortage forces the prices up

how to find shortage

quantity demanded minus quantity supplied

why does a higher price reduce the quantity demanded

substitution effect income effect

competitive market

t has many buyers and many sellers for the xat same thing The result: no single buyer or seller affects the price - many don't fit in compeitive

Given linear demand curves, if demand increases and supply decreases, then __________.

the equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous

money price

the number of dollars that must be given up in the exchange for a good servce

Market

the place in which you find them Buyers and sellers For goods, services, factors of production

at equilibrium price

the price that balances quantity supplied and quantity demanded

The relative price of a jar of pasta sauce is an opportunity cost because​ ______.

the relative price tells us how many pounds of bananas we must give up to get a jar of pasta sauce

how to calculate relative price

we divide the money price of a good by the money price of a "basket" of all goods (called a price index). The resulting relative price tells us the opportunity cost of the goods in terms of how much of the "basket" we must give up to buy it. - Relative Price of good A in terms of good B = price of good A/money price of good B