ECON: Chapter 4

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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


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