1 Income Normal good increase in income leads to an increase in demand vs

1 income normal good increase in income leads to an

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1. Income- Normal good (increase in income leads to an increase in demand) vs. inferior good (increase in income leads to a decrease in demand) 2. Prices of related goods- a. Substitutes (2 goods)- increase in price of 1 leads to increase in the demand for the other b. Complements (2 goods)- increase in price of 1 leads to decrease in demand for the other. 3. Tastes- change in tastes- changes the demand 4. Expectations about the future- a. Expect increase in income= increase in current demand b. Expect higher prices= increase in current demand 5. # of buyers- increases= market demand increases c. Quantity demanded- amount of a good that buyers are willing & able to purchase d. Law of demand (inverse relationship)- when the price of a good rises, the quantity demanded of the good falls & when the price falls, the quantity demanded rises. e. Market demand- sum of all individual demands for a good/service i. Market demand curve- sum the individual demand curves horizontally 1. Total quantity demanded of a good varies as the price of the good varies. VI. Supply- relationship between the price of good & the quantity supplied a. Supply schedule- table b. Supply curve- graph w/ price on x-axis & quantity on y-axis i. Shifts in supply curve 1. Increase in supply (any change that increases the quantity supplied at every price)-supply curve shifts to right. 2. Decrease in supply (any change that decreases the quantity supplied at every price)- supply curve shifts to left. ii. Variables that can shift the supply curve- input prices, technology, expectations about the future, # of sellers 1. Input prices- supply is negatively related to prices of inputs— higher input prices= decrease in supply 2. Technology- advance in technology= reduces firms’ costs, increase in supply 3. Expectations about the future- a. Affect current supply
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Microeconomics Final Exam Study Sheet b. Expected higher prices- decrease in current supply 4. # of sellers, increases- market supply increases. c. Quantity supplied- amount of a good that sellers are willing & able to sell d. Law of supply- when the price of a good rises, the quantity supplied of the good also rises & when the price falls, the quantity supplied falls as well. e. Market supply- sum of the supplies of all sellers for a good or service i. Market supply curve- sum of individual supply curves horizontally 1. Total quantity supplied of a good varies as the price of the good varies VII. Supply & demand together- determine the prices of the economy’s many different goods/services. a. Equilibrium- a situation in which market price has reached the level where--- quantity supplied=quantity demanded. i. Equilibrium price (market-clearing price)- balances quantity supplied & quantity demanded. ii. Equilibrium quantity- quantity supplied & quantity demanded at equilibrium price.
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  • Fall '08
  • BARCIA

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