Economics Chapter Three
Expectation of future prices shift
1. Expect the price to increase, demand increases 2. Expect the price to decrease, demand decreases
Law of demand represented
1. In words 2. In symbols 3. In a demand schedule 4. Demand curve
Why does QD go down as P goes up?
1. Substitute goods 2. Marginal Utility
Market
A place for trade; physical or virtual
Disequilibrium Price
A price other than equilibrium price; a price where QD does not equal QS
Disequilibrium
A state of either surplus or shortage in the market
Change in Demand versus Change in Quantity Demanded
Change in demand: shift from D1 to D2 Change in QD: Movement along D1 curve
Income shift for neutral goods
Demand does not change with income
Subsidy Effect on Supply
Directly Related
Shortage
Excess Demand; Quantity Demanded > Quantity Supplied; occurs at prices below equilibrium
Surplus
Excess Supply; Quantity Supplied > Quantity Demanded; occurs at prices above equilibrium
"If the price of apples rises, the supply of apples will rise."
False. If the price of apples rises, the quantity supplied of apples will rise-not the supply. We are talking about a movement from one point on a supply curve to a point higher up on the supply curve, not about a shift in the supply curve.
Marginal Utility
For a given time period, the additional utility or satisfaction gained by each unit will decline as the amount consumed increases; People are willing to pay more for first day (Disney tickets example)
Preferences
If people are in favor, demand increases If people go away from the good, demand decreases
Income shift for normal goods
Income and demand directly related
Income shift for inferior goods
Income and demand inversely related
5 Factors causing Shift in Demand Curve
Income, Preferences, Price of related goods, Number of Buyers, Expectations of future prices
Gov. Restrictions Effect on Supply
Inversely Related
Taxes Effect on Supply
Inversely Related
Expectations of Future Prices Effect on Supply
Inversely related; example: as oil prices rise for suppliers, the supply will go down. as oil prices decline for suppliers, supply will go up.
Subsidy
Monetary payments by gov to a producer of a good or service
Change in Quantity Supplied
Movement along a supply curve; only factor that causes change is the good's own price
Number of Buyers Shift
Number of Buyers and Demand directly related
Number of Sellers Effect on Supply
Number of Suppliers directly related with Supply
Demand Schedule
Numerical tabulation of quantity demanded of a good at different prices
Supply Schedule
Numerical tabulation of quantity supplied of a good at different prices; represents law of supply
Law of Demand
Price and Demand inversely related (ceteris paribus)
If Demand increases, and Supply stays the same
Price and Quantity Increase, Quantity Supplied increases
If Demand increase is more than the supply decrease
Price and Quantity decrease
If Demand decreases, and Supply stays the same
Price and Quantity decrease, and Quantity Supplied decreases
Law of Supply (& supply curve)
Price and Quantity directly related (c.p.)
If Supply increases, and Demand stays the same
Price decreases, Quantity increases, Quantity demanded increases
If Demand decrease equals the Supply Increase
Price decreases, Quantity stays the same
If Supply decreases, and Demand Stays the same
Price increases, Quantity Decreases
If Demand increase is less than the Supply decrease
Price increases, Quantity decreases
If Demand increase equals the Supply Decrease
Price increases, Quantity stays the same
7 Factors Cause Shift of Supply Curve
Price of Relevant Resources, Technology, Prices of Other Goods, Number of Sellers, Expectation of Future Prices, Taxes and Subsidies, Gov restrictions
Price of Relevant Goods (Resources) Effect on Supply
Prices directly related to supply
Decrease in Supply
Sellers willing and able to produce less of a good at all prices
Decrease in demand
Shifts demand curve to the left
Increase in demand
Shifts demand curve to the right
Price of Other Goods Effect on Supply
Supplier will shift to whatever is more profitable, has a higher selling price
Increase in Supply
Suppliers willing and able to produce and sell more at all prices
Quantity demanded
The # of units at particular price during particular time period people are willing to pay
Market Demand Curve
The price-quantity combo of a good for all buyers
Individual Demand Curve
The price-quantity combo of a particular single buyer
Market Equilibrium
The quantity combo where there is no tendency for buyers or sellers to move away; where supply and demand intersect
Prices of related goods; Complements
Two goods that are used jointly. Complements: the demand for one rises as the price of the other falls (and vice versa); e.g. Tennis ball and racket
Prices of related goods; Substitutes
Two goods that satisfy similar needs or desires. Substitutes: the demand for one rises as the price of the other rises (and vice versa); e.g. Pepsi and Coke
Substitute goods
Two or more goods that satisfy a similar need, so that one good can be used instead of the other. If two goods are substitutes, an increase in the price of one leads to an increase in the demand for the other.
Fixed Supply
Vertical line; used when quantity does not change
Demand
Willingness and ability of buyers 1. To purchase different quantities 2. At different prices 3. During specific time period
Supply
Willingness of sellers to produce a good at different prices at different times
