micro chapter 3 terms - demand and supply

supply schedule

lists the quantities supplied at each price

STEPS TO SOLVE S&D PROBLEMS

1. draw diagrams for each factor being affected 2. determine if the factors affect S or D curve 3. determine if the factors increase or decrease S & D (left of right shift) 4. in one diagram, draw a big D shift & small S shift. in the other diagram, draw a small D shift and big S shift (if evaluating more than one factor)

factors that shift the demand curve

1. the price of related goods (substitutes & complements) 2. Expected future prices (like sales) 3. income 4. expected future income and credit 5. population 6. Preferences

factors that shift the supply curve

1. the prices of factors of production 2. the prices of related goods produced 3. expected future prices 4. the number of suppliers 5. technology 6. state of nature

change in demand

A change in buyers' plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift of the demand curve. (moves the demand curve rightward or leftward)

change in quantity demanded

A change in buyers' plans that occurs when the price of a good changes but all other influences on buyers' plans remain unchanged. It is *illustrated by a movement along the demand curve*

change in supply

A change in sellers' plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift of the supply curve.

change in quantity supplied

A change in sellers' plans that occurs when the price of a good changes but all other influences on sellers' plans remain unchanged. It is illustrated by a movement along the supply curve.

supply curve

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

2. Explain why a relative price is an opportunity cost.

A relative price is an opportunity cost because the relative price is the *ratio* of the price for one good or service to the price of another good or service-which is the definition of an opportunity cost.

relative price

the ratio of the price of one good or service to the price of another good or service the opportunity cost

law of supply

Other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied

law of demand

Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and the lower the price of a good, the greater is the quantity demanded

inferior good

a good for which demand decreases when income increases ex: long distance bus transportation decreases

normal good

a good for which demand increases as income increases ex: air travel increases

substitute

a good that can be used in place of another good

complement

a good that is used in conjunction with another good.

competitive market

a market that has many buyers and many sellers, so no single buyer or seller can influence the price

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

movement along the demand curve

change in price of the product

preferences

determine the value that people place on each good and service

A surplus forces the price

down

3. Think of examples of goods whose relative price had risen or fallen by a large amount.

gasoline; college tuition; food

A Change in the Quantity Demanded Versus a Change in Demand

graph

as the price increases the demand for substitutes

increases

1. What is the distinction between a money price and relative price?

money price is the amount of dollars spent on an item. relative price is the opportunity cost, or the ratio, of having one item over another.

quantitiy demanded

refers to a point on a demand curve

a shift in the demand curves shows a

shift in demand

demand curve

shows the relationship between the quantity demanded of a good and its price

relative prices

supply & demand model determines

quantity demanded

the amount of a good or service that consumers are plan to buy during a given times period at a particular price measured as an amount per unit of time

quantity supplied

the amount of a good or service that producers plan to sell during a given time period at a particular price refers to a point on a supply curve

marginal cost

the cost of producing one more unit of a good

demand

the entire relationship between the price of a good and the quantity demanded of that good

supply

the entire relationship between the price of a good and the quantity supplied of it when all other influences on producers' planned sales remain the same. It is described by a supply schedule and illustrated by a supply curve.

opportunity cost

the highest-valued alternative forgone

money price

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

equilibrium price

the price at which the quantity demanded equals the quantity supplied

equilibrium quantity

the quantity bought and sold at the equilibrium

wants

the unlimited desires or wishes that people have for goods and services

marginal benefit

the willingness and ability to pay is a measure of

Shortage forces the price

up

resources and technology

what limits supply?