Supply and Demand Flashcards

Terms Definitions
Circular Flow Diagram
the relationship between price and quantity supplied
Factors or Production
natural resources
entrepenuerial ability
a government payment that supports a business or market (protect industries from foreign competition, farm subsidies to keep prices high)
Black Market
"underground" or illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold
quantity demanded is greater than the quantity supplied
total surplus
the difference between the buyer;s reservation price and the seller's reservation price
the desire to own something and the ability to pay for it
Supply schedule
The link between a seller's quantity supplied and the market price.
Market Equilibrium
A situation in which quantity demanded equals quantity supplied.
Normal Good
demand increases as imcome rises and decreases as income falls
inferior goods
goods for which demand decreases as income increases
market supply schedule
all the supply schedule of individual firms added up
Price Ceiling
a legal maximum price that may be chargeed for a particular good or service
Local market
A market where buyers and sellers are geographically close to each other.
The supply and demand model assumes
a perfectly competitive market.
When the price of a good rises, demand for complementary goods shift...
change in demand
a shift of the entire demand curve
complementary goods
goods that are used together (as the price of one rises, the demand for the other falls)
Law of Market forces
States that:
When there is a shortage, price rises
When there is a surplus, price falls
Quantity Demand
The amount of a good that all buyers in a market would choose to buy during a period of time guven their constraints
Demand Curve Shifts to the Right
Supply Curve Shifts to the Left
Q increases or decreases
P increases
determinants of supply
factors other than the price of the good that influence supply—prices of resources, technology and productivity, expectations of producers, number of ­producers, and the prices of related goods and services
Quantity supplied
The amount of a good or service that a seller is willing to supply at a given price.
Income: normal and inferior goods
When HH income increases, so does demand for a g/s and vice versa. Don't confuse with income effect=>price factor. Eg you get a $5,000 bonus except for inferior goods! eg. fish sticks- raise=you get lobster instead
demand schedule
a list of table of the prices and the corresponding quantities demanded of a particular good or service
Trade-Off force society to answer three questions:
what goods and services will be produced
How will the goods and services be produced
who will receive the goods and seriveces produced
How does a decrease in Demand affect the Demand & Supply Curve
A decrease in Demand:
Shifts the Demand Curve Leftward
Lowers the Price
Decreases the Quantity Supplied
Decreases the Equilibrium Quantity
Increase in the Price of an Input 
shifts S curve to the left
the costs of producing the good rise
What is the price elasticity of demand?
It is a measurement of how much quantity demanded depends on price
Related goods are either 1.____ or 2.____
Economic growth
The Increase in our production of goods and services that occurs over long periods of time
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
the quantity of output produced per unit of resource
two goods that are bought and used together, demand rises and falls together (skis and ski boots)
Price Floor
A government imposed price. The lowest price at which it is legal to trade a particular good, service or factor of production
Demand Curve
The graphical depictionn of a demand scedual: a curve showing the quantity of a good or service demanded at vairous prices with all other cariable held constant
5 determinants of demand (NPF)
Consumer taste/preference; market size/# of buyers; income: normal and interior goods; prices of related goods: substitutes and complementary; consumer expectations of future income
Rent Ceiling
A law that makes it illegal for landlords to charge a rent that exceeds a set limit
Substitution Effect
economic rule stating that if 2 items satisfy the same need and the price of one rises, people will buy more of the other
Global markets
A market where buyers and sellers can be located anywhere in the world.
Purchasing power
The quantity of goods a consumer can buy with a fixed amount of income.
Demand Curve Unchanged and Supply cuve Unchange
Q unchanged
P unchanged
income effect
the change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power
Law of Diminishing Marginal Utility
rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased
Variables that Shift the Market Demand Curve
proces of related goods
population and demographics
ecpected future prices
a person who is willing to pay for a product or service
Change in Quanity Demanded
A movement along a demand curve in response to a change in price
A Circular Flow Model Demonstrates:
The roles played by households and firms in the market system
formula for elasticity of demand
% change in quantity demanded / % change in price
The Slope of a PPF Measures:
The opprotunity cost of producing one more unit of a good
What are the causes of decrease in demand?
The price of a substitute falls
The price of a complement rises
The price of the good is expected to fall or income is expected to fall in the future
Income decreases & good is a normal good
The number of buyers decreases
demand curve( movement or shift )
there is a movement along the demand curve when- price of a good being demanded changes.
shift - income changes, price and availability of related good changes, taste changes, ditribution of income changes, population size changes.

build new factory or stay in the market?
only if the market price of beanbags is high enough to cover all the costs of production, including the cost of building a new factory
total revenue - total cost
Ceteris paribus
LAtin fot "all else remain equal"
Three Key Economic Ideas
1.people are rational
2.people respond to economic incentives
3.optimal decisions are made at the margin
a quantity supplied that is larger than the quantity demanded at a given price
Business cycle
Flucations in real GDP around its long-term growth trend
inferior good
one whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease
market demand schedule
shows the quantities of a good demanded at each price by all consumers in the market
A good that can be consumed in place of another good
the ability of any good or service to satisfy consumer wants
Demand schedual
A list showing the quantities of a goood that consumers would choose to purchase at difference prices with all other variables held constand
a group of buyers and sellers of a good or service and the institution or arrangement by wihch they come together to trade
As the price of any commodity rises, the quantity supplied normally ____. As the price falls, the quantity supplied normally ____.
rises; falls
elasticity of supply
a measure of the way suppliers respond to a change in price
Upward-sloping supply curve
A supply curve that is consistent with the law of supply, so that an increase in price leads to an increase in quantity supplied. As a result, the line slopes up when read from left to right.
A good that can be used in place of some other good and that fulfuills the same purpose
A Shift in the Supply Curve is a:
change in supply
excise tax
a tax on the production or sale of a good, increases production cost and causes supply to decrease at all price levels
Increase in Income (good is inferior)
shifts to the left
consumers spend less of their higher incomes on the good
effect of number of suppliers
if more suppliers enter the market to produce a specific good, the market supply of the good will rise
A shift (moves right or left) in the Demand Curve is a:
a change in demand
A movement along a demand curve
is an increase or decrease in the QUANTITY DEMANDED.
elasticity of supply in the long run
firms are more flexible, so supply is more elastic
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