Econ Chapter 4

The effect of price of resources and other inputs on supply

Resource and input prices influence the cost of production. And the more it costs to produce a good, the smaller is the quantity supplied of that good.

ME- Increase in demand and decrease in supply

Raises the equilibrium price. The change in the equilibrium quantity is ambiguous because the: Increase in demand increases the quantity. Decrease in supply decreases the quantity

If there is a decrease in supply what happens to the supply? Reasons

Supply decreases and the curve shifts LEFT 1. The price of a sub in production rises 2. The price of a compliment in production rises 3. A resource price or other input price rises 4. The price of a good is expected to rise 5. The number of sellers decreases 6. Productivity decreases

Change in supply

a change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.

Expected Future Income and Credit

When income is expected to increase in the future, or when credit is easy to get and the cost of borrowing is low, the demand for some goods increases. When income is expected to decrease in the future, or when credit is hard to get and the cost of borrowing is high, the demand for some goods decreases.

Market Equilibrium

occurs when the quantity demanded equals the quantity supplied.

Expected Future Prices

A rise in the expected future price of a good increases the current demand for that good. A fall in the expected future price of a good decreases current demand for that good.

Law of market forces

When there is a shortage, the price rises. When there is a surplus, the price falls.

Normal Good

a good for which the demand increases if income increases and demand decreases if income decreases

Substitute

a good that can be consumed in place of another good. The demand for a good increases, if the price of one of its substitutes rises. The demand for a good decreases, if the price of one of its substitutes falls.

Demand Curve

a graph of the relationship between the quantity demanded of a good and its price when all other influences on buying plans remain the same.

Demand Schedule

a list of the quantities demanded at each different price when all the other influences on buying plans remain the same.

Supply Schedule

a list of the quantities supplied at each different price when all other influences on selling plans remain the same

If the price of a good rises, the quantity supplied...

Increases and there is a movement up along the supply curve

Quantity Demanded

the amount of a good, service, or resource that people are willing and able to buy during a specified period at a specified price.

If there is a decrease in DEMAND, the demand curve..

the demand curve decreases and shifts LEFT 1. The price of a sub falls or a compliment rises 2. The price of the good is expected to fall 3. Income decreases 4. Expected future income or credit decreases 5. The number if buyers decreases

Inferior Good

a good for which the demand decreases if income increases and demand increases if income decreases.

Change in demand

a change in the quantity that people plan to buy when any influence other than the price of the good changes.

Market Demand

the sum of the demands of all the buyers in a market.

Market Supply

the sum of the supplies of all sellers in a market.

Market Equilibrium- When both supply and demand decrease

Decreases the equilibrium quantity. The change in the equilibrium price is ambiguous because the: Decrease in demand lowers the price Decrease in supply raises the price.

When the supply increases, what happens to the supply curve?

It shifts RIGHT

ME- Decrease in demand and increase in supply

Lowers the equilibrium price. The change in the equilibrium quantity is ambiguous because the: Decrease in demand decreases the quantity. Increase in supply increases the quantity.

If there is an increase in supply what happens to the supply? Reasons

Supply increases and the supply curve shifts RIGHT 1. The price of a sub in production falls 2. The price of a compliment in production rises 3. A resource price or other input price falls 4. The price of the good is expected to fall 5. The number of sellers increases 6. Productivity increases

If the PRICE of a good falls, the quantity supplied...

decreases and there is a movement DOWN the supply curve

If the PRICE of a good increases, quantity demanded...

decreases and there is a movement UP the demand curve

When supply decreases, what happens to the supply curve?

it shifts LEFT

Equilibruim Price

the price at which the quantity demanded equals the quantity supplied.

6 main influences on buying plans that change demand are

1.Prices of related goods 2.Expected future prices 3.Income 4.Expected future income and credit 5.Number of buyers 6.Preferences

5 main influences on selling plans that change supply

1.Prices of related goods 2.Prices of resources and other Inputs 3.Expected future prices 4.Number of sellers 5.Productivity

Effect of productivity on supply

An increase in productivity lowers costs and increases supply. For example, an advance in technology increases supply. A decrease in productivity raises costs and decreases supply. For example, a severe hurricane decreases supply.

Change in Quantity Demanded

a change in the quantity of a good that people plan to buy that results from a change in the price of the good.

Change in quantity supplied

a change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good.

Market Equilibrium- When demand changes

The supply curve does not shift. But there is a change in the quantity supplied. Equilibrium price and equilibrium quantity change in the same direction as the change in demand.

If the PRICE of a good decreases, quantity demanded...

increaes and there is a movement DOWN along the demand curve

When Demand DECREASES, what happens to the demand curve?

it shifts LEFT DECREASE---LEFT

When demand INCREASES, what happens to the demand curve?

it shifts RIGHT INCREASE--RIGHT

Quantity Supplied

the amount of a good, service, or resource that people are willing and able to sell during a specified period at a specified price.

Equilibrium Quantity

the quantity bought and sold at the equilibrium price.

Surplus

the quantity supplied exceeds the quantity demanded. EXCESS SUPPLY

Demand

the relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same.

Market Equilibrium- When both supply and demand increase

Increases the equilibrium quantity. The change in the equilibrium price is ambiguous because the: Increase in demand raises the price. Increase in supply lowers the price.

The Law of Supply

Other things remaining the same, If the price of a good rises, the quantity supplied of that good increases. If the price of a good falls, the quantity supplied of that good decreases.

Law of Demand

Other things remaining the same, If the price of the good rises, the quantity demanded of that good decreases. If the price of the good falls, the quantity demanded of that good increases.

Shortage

Shortage or Excess Demand is the quantity demanded exceeds the quantity supplied. EXCESS DEMAND

Market Equilibrium- When supply changes

The demand curve does not shift. But there is a change in the quantity demanded. Equilibrium price changes in the same direction as the change in supply. Equilibrium quantity changes in the opposite direction to the change in supply.

Change in Demand

a change in the quantity that people plan to buy when any influence other than the price of the good changes.

Change in Supply

a change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes

Substitute in Production

a good that can be produced in place of another good The supply of a good increases if the price of one of its substitutes in production falls. The supply a good decreases if the price of one of its substitutes in production rises.

Compliment

a good that is consumed with another good. The demand for a good increases, if the price of one of its complements falls. The demand for a good decreases, if the price of one of its complements rises.

Compliment in Production

a good that is produced along with another good. The supply of a good increases if the price of one of its complements in production rises. The supply a good decreases if the price of one of its complements in production falls.

Supply Curve

a graph of the relationship between the quantity supplied and the price of the good when all other influences on selling plans remain the same.

If there is an increase in DEMAND, the demand curve...

the demand curve increases and shifts RIGHT 1.Price of a sub rises or a compliment falls 2.The price of a good is expected to rise 3.Income increases 4.Expected future income or credit increases 5.The number of buyers increases