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Quantity demanded definition
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quantity the household wants to purchase, given the own price, ceteris paribus
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quantity demanded
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desired purchases (wants)
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quantity exchanged/bought
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actual purchases
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ceteris paribus
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holding all other variables constant, other things being equal
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stock variable
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a specific point in time
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flow variable
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measured overtime
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the law of demand
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price of product and quantity demanded are related negatively (ceteris paribus). The lower the price the higher Qd, the higher the price the lower the Qd
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demand schedules
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show relationship between Qd and price of a product (ceteris paribus)
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demand curve
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quantity customers want to buy at each price. the relationship between Qd and price (ceteris paribus), slope indicates Qd increases as price decreases
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demand
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relationship between Qd and product and the price of that product
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reasons for inverse relation in terms of demand
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benefit - determined by customers preferences (given), cost- opportunity cost (price which can change), incentive- benefit (given) - OC (changes), incentive principal- as price increases net benefit decreases making buyer less willing to buy
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demand function
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Qd = f(P). P on horizontal axis
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inverse demand function
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P = g(Qd). P on vertical axis
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right shift in demand curve
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more Qd at each price (increase in demand)
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left shift in demand curve
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Less Qd at each price (decrease in demand)
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ceteris paribus variables (demand)
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income, price of other goods, taste/preference, population, drastic changes to weather
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income variable effect of demand curve
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as income rises people desire more products. produces right shift of curve
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price of other goods variable effect of demand curve
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all about substitutes, if the product stays stable but the price of the substitute drops people will buy more of the substitute
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substitutes in consumption
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people will buy the cheaper option
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complements in consumption
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products are used together (they shift together)
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taste/preference variable effect on demand curve
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shifts the demand curve right if the product is preferred
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population variable effect on demand curve
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an increase in population will shift the curve for most products to the right (more consumers to purchase products)
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change in demand (shift curve or move along?)
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change in demand causes the Qd to change at every price, therefore the entire curve will shift
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change in quantity demanded (shift curve or move along?)
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movement from one point to the other
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increase in demand (shift curve or move along?)
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whole curve will shift
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decrease of quantity demanded (shift curve or move along?)
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movement to up and left
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change in demand and price (shift curve or move along?)
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shift in demand curve and movement along new curve
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quantity supplied definition
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quantity the firm wants to sell, given the own price, ceteris paribus
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quantity supplied vs quantity sold/exchanged
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Quantity supplied is the amount producers are willing to offer for sale, quantity sold/exchanged is the amount actually sold
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firm
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supply side (seller, store, factory)
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economic hypothesis that the price of a product and the Qs are __________ ___________, ceteris paribus
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related positively (higher products own price, more producers will supply. the lower the price the less producers will supply)
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supply schedule
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shows relationship between Qs of a product and the price of the product (positive slope)
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supply curve
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graph of the supply schedule
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supply
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entire relationship between Qs and price,
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marginal principal (supply)
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seller decides by comparing benefits and costs at the margin
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reasons for inverse relation in supply
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benefit- price (can change), cost- alternative use of inputs (given, OC), incentive- benefit (change) - OC (given)
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incentive principal (supply)
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as price increases, net benefit increases. Therefore seller is more willing to sell when price increases
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scarcity, _________, and ________ lie at the root of supply and demand
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choice, OC
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what does a shift in the supply curve mean?
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change in Quantity supplied
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increase in Qs shifts curve which way
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right
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decrease in Qs shifts curve which way
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left
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quantity supplied equation
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Qs = f (price/ ceteris paribus variables)
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ceteris paribus variables in terms of supply
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prices of inputs, technology, government taxes and subsides, prices of other products, significant changes of weather, and number of supplies
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change in supply (movement along or shift of curve?)
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shift whole curve because Qs changes at every cost
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change in quantity supplied (movement along or shift or curve?)
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movement from one point to the other
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four steps to success while determining how a curve will react
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1) is it a change in price (movement along) or a change of variable (shift of curve) 2) does the variable affect supply or demand (income, taste, ect ----> D. costs---> S) 3) does it direct the curve directly or inverse (compliments and costs are inverses) 4) what way does the curve shift (increase -----> right. decrease----> left)
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market
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exists in any situation where buyers and sellers negotiate the exchange of goods or services
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excess supply causes ___________ pressure on price, Excess demand causes __________ upward pressure on price
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downward, upward
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equilibrium price definition
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the price where quantity demanded equals quantity supplied (once established will continue until disturbed)
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disequilibrium
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whenever there is excess demand or excess supply (market price will be changing at this state)
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4 possible equilibrium curve shifts and their effects
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1) increase in demand- increase in eqm price and increase in eqm quantity 2) decrease in demand- decrease in eqm price and decrease in eqm quantity 3) increase in supply- decrease in eqm price, increase in eqm quantity 4) decrease in supply- increase in eqm price, decrease in eqm quantity
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stable equilibrium
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if eqm changes it will bounce back
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unstable equilibrium
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if eqm changes it will not bounce back
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equilibrium principal
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if you're there (equilibrium), you'll stay there. remains constant over time
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stability principle
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if you are not there (equilibrium), you will go there
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absolute price
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The amount of money that must be spent to acquire one unit of a commodity. Also called money price. (terms of money)
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relative price
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a ration between 2 absolute prices, price of one good relative to the other good
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to determine market eqm what is the equation
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set Qd=Qs gives you price
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to find eqm quantity what do you do?
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substitute the price found by setting the two equations equal to each other into the P value for either the demand or supply equation (will give same answer)
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