Econ 131 CH3
What is the difference between a shift in demand and a shift in quantity demanded?
-A change in price will shift the Quantity demanded, prompting to a different price point down the demand curve. (A change in price will not shift the entire curve.) -A shift in demand will shift the entire demand curve and all price points. This is from a new factor like increase in income, tase and preference, change in demographic or expectation.
What are some other factors that may shift supply?
-Changes in nature. -Technological advancement. -Government policy, (subsidies, tariffs, or taxes.)
What factors affect demand?
-Desire to purchase/taste and preferences. -Income. -Prices of "related goods." -The size and composition of the population.
What is Surplus and shortage?
-Surplus is when the supply exceeds demand for what people are willing to pay. The result is a ton of extra inventory at a high price. The price will then begin to drop back to or below equilibrium. -A shortage is when Supply is far less than the demand. People are in high demand for a product that there is few of. The result will be and increase of supply toward equilibrium.
What is a supply schedule?
A "supply schedule" is a table that shows the quantity supplied at a range of different prices.
What are factors that effect demand?
A change in income, population, tastes, prices of substitutes or complements, or expectations about future prices.
What is the ceteris paribus assumption? (All things are equal assumption.)
A demand curve or a supply curve is a relationship between two, and only two, variables when all other variables are kept constant.
What is a Demand Curve?
A demand curve shows the relationship between price and quantity demanded on a graph.
What are Inputs or "Factors of Production."
A firm produces goods and services using combinations of labor, materials, and machinery, or what we call inputs or factors of production.
How might the change in price for a related good shift the demand curve? (Substitute)
A lower price for a substitute decreases demand for the other product.
What is an Inferior good?
A product whose demand falls when income rises, and vice versa, is called an inferior good.
What is a Normal Good?
A product whose demand rises when income rises, and vice versa, is called a normal good.
What is a shift in the demand?
A shift in demand happens when a change in some economic factor (other than price) causes a different quantity to be demanded at every price.
What is a Supply Curve?
A supply curve is a graphic illustration of the relationship between price, shown on the vertical axis, and quantity, shown on the horizontal axis.
What is the Law of Supply?
An increase in price results in an increase in quantity supplied.
What are Changes in Expectations about Future Prices?
As people expect an event to happen in the future, consequently they buy according to their expectations of that event. (Example: People that hear about a hurricane coming will rush to buy survival goods as a result.) (Example: If people believe the price of coffee will rise in the future, they will stock up on coffee.)
How might tastes or preferences shift the demand curve?
As the USA goes from eating 40 tons to 80 tons of chicken per year. The demand curve will shift to the right due to increased consumption.
How might the composition of the population shift the demand curve?
As the proportion of the population that is elderly increases from say 8% to 12% there will be a shift in the demand curve for things like assisted living facilities and old people cars.
What is Excess Supply or Surplus?
At above-equilibrium price. Quantity demanded has fallen to 500 gallons, while quantity supplied has risen to 680 gallons. In fact, at any above-equilibrium price, the quantity supplied exceeds the quantity demanded. We call this an excess supply or a surplus.
What is a Demand Table?
Economist call a table that shows the quantity demanded at each price a demand schedule.
What is the Law Of Demand?
Economists call this inverse relationship between price and quantity demanded the law of demand.
What is Demand?
Economists use the term "demand" to refer to the amount of some good or service consumers are willing and able to purchase at each price.
What is a complement?
Other goods are complements for each other, meaning we often use the goods together, because consumption of one good tends to enhance consumption of the other. (For Example: breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles.)
What are the four shift possibilities in terms of price and quantity when determining the equilibrium of a good or service?
P+Q-, P+Q+, P-Q-, P-Q+
What is the four-step process to finding a change in equilibrium?
Step 1. Draw a demand and supply model before the economic change took place. To establish the model requires four standard pieces of information: The law of demand, which tells us the slope of the demand curve; the law of supply, which gives us the slope of the supply curve; the shift variables for demand; and the shift variables for supply. From this model, find the initial equilibrium values for price and quantity. Step 2. Decide whether the economic change you are analyzing affects demand or supply. In other words, does the Chapter 3 | Demand and Supply 61 event refer to something in the list of demand factors or supply factors? Step 3. Decide whether the effect on demand or supply causes the curve to shift to the right or to the left, and sketch the new demand or supply curve on the diagram. In other words, does the event increase or decrease the amount consumers want to buy or producers want to sell? Step 4. Identify the new equilibrium and then compare the original equilibrium price and quantity to the new equilibrium price and quantity.
When the price goes up for gasoline and the amount of gasoline people want to buy goes down, is the demand for gasoline increasing or decreasing?
The Demand is decreasing. The units of gas demanded is dropping, therefore the demand is dropping.
What is the Equilibrium Quantity?
The amount of the product consumers want to buy (quantity demanded) is equal to the amount producers want to sell (quantity supplied). Economists call this common quantity the equilibrium quantity.
When an input factor like income shifts the demand curve to the right, does only one price point shift or do all price point shift on the curve?
The entire curve shifts with the new input, so all price points shift. (Example: If income increases dramatically for the demographic that likes your product, then the demand curve shifts to the right to a higher demand curve.)
What is the equilibrium price?
The equilibrium price is the only price where the plans of consumers and the plans of producers agree.
What is Quantity Supplied?
The number of units of a good produced and offered for sale.
What does a change in equilibrium demonstrate?
The outcome of a shift in both the supply curve and the demand curve.
What is Quantity Demand?
The total number of units that consumers would purchase at that price.
What is a shift in supply?
This is a shift in the quantity supplied at every price.
What is excess demand or a "Shortage."
When the price is below equilibrium, there is excess demand, or a shortage.
What is equilibrium?
Where the Demand and Supply curves intersect.
What are factors that effect supply?
like a change in natural conditions, input prices, or technology, or government policies that affect production.
What is Supply?
the amount of goods producers are willing to make and sell at each price.