ECON: Chapter 4
A decrease in quantity demanded results in...
a movement upward and to the left along a fixed demand curve
You lose your job and you buy fewer romance novels. Romance novels are
a normal good
Expectations shift...
both S and D curves
In a market economy, supply and demand determine
both the quantity of each good produced and the price at which it is sold
Example of an inferior good
bus rides
If demand for a product decreases, then equilibrium price will
decrease and equilibrium quantity will decrease
If supply of a product increases, then equilibrium price will
decrease and equilibrium quantity will increase
Increase in income for an inferior good causes...
decrease in quantity demanded, shifts D curve to the left
If price changes, demand curve...
doesn't shift
Market
group of buyers and sellers of a particular product
Expectations-supply example
if a firm expects the price of ice cream to rise in the future, it will put some of its current production into storage and supply less
Increase in income for a normal good causes...
increase in quantity demanded at each price, shifts D curve to the right
Facing a surplus, sellers try to
increase sales by cutting price. Quantity demanded rises and quantity supplied falls
Price and quantity demanded are...
inversely related
A decrease in supply is represented by...
leftward shift of a supply curve
Demand for an inferior good is...
negatively related to income
Competitive market
one with many buyers and sellers, each has a negligible effect on price
All non price determinants of demand are held constant when...
we move along a given demand curve
Example of compliments
Decrease in the price of iPods causes an increase in demand for music downloads
Perfectly competitive market
Different sellers sell identical products, many sellers, sellers must accept the price the market determines
Input Prices
Fall in input prices makes production more profitable. shifts S curve
Expectations- demand example
If people expect their incomes to rise, their demand for meals at expensive restaurants may increase
Tastes
If you like something, you will demand more of it
Number of Sellers
Increase in number of sellers increases the quantity supplied at each price. Shifts S curve
Complements-price of related goods
Increase in the price of one causes a decrease in demand for the other
Substitutes- price of related goods
Increase in the price of one causes an increase in demand for the other
Example of substitutes
Increase in the price of pizza causes an increase in demand for hamburgers.
Demand curve shifters
Price- causes movement along D curve Number of buyers Income Price of related goods Tastes Expectations
Supply curve shifters
Price- causes movement along S curve Input Prices Technology Number of Sellers Expectations
Technology
Technological improvement will raise the supply of a product. Shifts S curve
Demand for a normal good is...
positively related to income.
Equilibrium price
price that equates quantity supplied when quantity demanded
Shortage
quantity demanded is greater than quantity supplied
Law of Demand
quantity demanded of a good falls when the price of the good rises
Law of supply
quantity of a good rises when the price of the good rises
Equilibrium quantity
quantity supplied and quantity demanded at equilibrium price
Surplus
quantity supplied is greater than quantity demanded
Facing a shortage, sellers
raise the price. Quantity demanded falls and quantity supplied rises
Quantity demanded in the market
sum of the quantities demanded by all buyers at each price
Quantity supplied in the market
sum of the quantities supplied by all sellers at each price
Quantity demanded of any good is
the amount of the good that buyers and sellers are willing and able to purchase.
The quantity supplied of any good is...
the amount that sellers are willing and able to sell
