ECO Chapter 2
Pe, (Qd)
expected future price of a product, direct, positive
producer surplus
for each unit supplied, the difference between the market price and the minimum price producers would accept to supply the unit (its supply price)
substitutes in production
goods for which an increase in price of one good relative to the price for another good causes producers to increase production of the now higher-priced good and decrease production of the other good
complements in production
goods for which an increase in the price of one good, relative to the price of another good, causes producers to increase production of both goods
demand curve
graph showing the relationship between quantity demanded and price when all other variables influencing quantity demanded are held constant
M, for normal goods, (Qd)
income of consumers, direct, positive
M, for inferior goods, (Qd)
income of consumers, inverse, negative
direct supply function
table, graph, or equation that shows how quantity supplied is related to product price, all other things constant : Qs = f (P)
T*, (the astrisc means it's the fancy T), (Qd)
taste patterns of consumers, direct, positive
indeterminate
term referring to the unpredictable change in either equilibrium price or quantity when the direction of change depends upon the relative magnitudes of the shifts in the demand and supply curves
quantity supplied
the amount of a good or service offered for sale during a given period of time
equilibrium quantity
the amount of good bought and sold in the market equilibrium
inverse demand function
the demand function when price is expressed as a function of quantity demanded: P = f(Qd)
consumer surplus
the difference between the economic value of a good (its demand price) and the market price the consumer must pay
economic value
the maximum amount any buyer in the market is willing to pay for the unit, which is measured by the demand price for the unit
demand price
the maximum price consumers will pay for a specific amount of a good or service
ceiling price
the maximum price the government permits sellers to charge for a good. When the price is below equilibrium, a shortage occurs.
supply price
the minimum price necessary to induce producers to offer a given quantity for sale
floor price
the minimum price the government permits sellers to charge for a good. When the price is above equilibrium, a surplus occurs.
general demand function
the relation between quantity demanded and the six factors that affect quantity demanded (Qd = f (P, M, PR, T*, Pe, N)
general supply function
the relation between quantity supplied and the six factors that jointly affect quantity supplied: Qs = f (P, PI, Pr, T, Pe, F)
technology
the state of knowledge concerning the combination of resources to produce goods and services
social surplus
the sum of consumer surplus and producer surplus, which is the area below demand and above supply over the range of output produced and consumed
inverse supply function
the supply function when price is expressed as a function of quantity supplied: P = f(Qs)
P, (Qd)
Price of a good or service, inverse, negative
PR (*note* the capital R is important), for substitute goods, (Qd)
Price of related goods or services, direct, positive
PR (*note* the capital R is important), for complement goods, (Qd)
Price of related goods or services, inverse, negative
Quantity Demanded
(used to describe movements ALONG the curve), the amount of a good or service consumers are willing and able to purchase during a given period of time
decrease in supply
a change in the supply function that causes a decrease in quantity supplied at every price, and is reflected by a LEFTWARD shift in the supply curve
increase in supply
a change in the supply function that causes an increase in quantity supplied at every price, and is reflected by a RIGHTWARD shift in the supply curve
inferior good
a good or service for which an increase (decrease) in income causes consumers to demand less (more) of the good, all other factors held constant
normal good
a good or service for which an increase (decrease) in income causes consumers to demand more (less) of the good, holding all other variables constant
supply curve
a graph showing the relation between quantity supplied and price, all other things constant
change in quantity demanded
a movement ALONG the given demand curve that occurs when the PRICE of the good changes, all else constant
change in quantity supplied
a movement ALONG the supply curve from a change in PRICE, all else constant
change in quantity supplied
a movement ALONG the supply curve that occurs when the PRICE of a good changes
change in demand
a shift in demand, either left or right, that occurs only when one of the determinants of demand changes
market equilibrium
a situation in which, at the current price, consumers can buy all of the good they want and producers can sell all of the good they want: Qd = Qs ; also called "market clearing price"
demand schedule
a table showing a list of possible product prices and the corresponding quantities demanded
supply schedule
a table showing a list of possible product prices and the corresponding quantities supplied
direct demand function
a table, graph, or equation that shows how quantity demanded is related to product price, all other factors held constant : Qd = f(P)
decrease in demand
causes a decrease in quantity demanded at every price and is reflected by a LEFTWARD SHIFT of the demand curve
increase in demand
causes increase in quantity demanded at every price and is reflected by a RIGHTWARD SHIFT of the demand curve
N, (Qd)
number of consumers in the market, direct, positive
slope parameters (of demand)
parameters in a linear function that measure the effect on the dependent variable (Qd) of changing one of the independent variables (P, M, PR, T*, Pe, and N)
quantitative forecast
predicts both direction and magnitude of the change in an economic variable
qualitative forecast
predicts only the direction in which an economic variable will move
equilibrium price
price at which Qd = Qs
law of demand
quantity demanded increases when price falls and decreases when price rises, all other things held constant
complements
two goods are complements if an increase (decrease) in the price of one of the goods causes consumers to demand less (more) of the other good, all other factors held constant
substitutes
two goods are substitutes if an increase (decrease) in the price of one of the goods causes consumers to demand more (less) of the other good, all other factors held constant
determinants of supply
variables that cause a change in supply (a SHIFT in the supply curve)
determinants of demand
variables that change the quantity demanded at each price and determine where the demand curve is located: (M, PR, T*, Pe, and N)
excess demand (shortage)
when Qs < Qd
excess supply (surplus)
when Qs > Qd