|Microeconomics| Ch.04-The Market Forces of Supply and Demand (Part 2-How Markets Work)

question

Quanity Demanded (Qd)

answer

The amount of a good a buyer is willing and able to purchase at a given price.

question

Law of Demand

answer

Other things equal, the quantity demanded of a good decrease when the price of the good increases.

P (rises), Qd (decreases)
P (falls), Qd (increases)

question

Change in Quantity Demanded

answer

1. Shown as a movement along a stable demand curve.
2. Occurs ONLY when the price of the good itself currently changes.

question

Change in Demand

answer

1. Shown as a shift of the demand curve.

Increase = shift right
Decrease = shift left

question

What shifts the demand curve (d)

answer

1. Income.
2. Prices of related goods.
3. Number of buyers.
4. Tastes.
5. Expectation (buyers)

question

Five causes of the Demand Curve

answer

1. Income
2. Prices of related goods
3. Number of buyers
4. Tastes
5. Expectations (buyers)

question

Two types of Income

answer

1. Normal goods
2. Inferior goods

question

Normal goods

answer

Any good you buy more of with MORE income and less of with LESS income.

- Income (goes up) demand (goes up), shift right.
- Income (goes down) demand (goes down), shift left.

question

Inferior goods

answer

Any good you buy more with LESS income and less of with MORE income

- Income (goes up) demand (goes down), shift left.
- Income (goes down) demand (goes up), shift right.

question

Prices of Related goods (two types)

answer

1. Substitutes
2. Complements

question

Substitutes

answer

Two goods are substitutes if an increase in price of one good leads to an increase in demand for the other good.

question

Complements

answer

Two goods are complements when an increase in the price of one good decreases the demand for the other good.

question

Tastes

answer

If you like something or hear good things about it, you buy more of it
- Demand shift right.

question

Expectations (buyers)

answer

If a buyer expects the price of a good to rise (fall) in the future, we will buy more(less) now.
- Demand shift right(left)

question

Number of buyers

answer

1. Number of buyers (goes up) demand (goes up), shift right.
2. Number of buyers (goes down) demand (goes down), shift left.

question

Quantity Supplied (Qs)

answer

Other things equal, The quantity supplied of a good increases when the price of the good increases.

question

Law of Supply

answer

Other things equal, The quantity supplied of a good increases when the price of the good increases.

P (rises) Qs (rises)
P (falls) Qs (falls)

question

Change in Quantity Supplied

answer

Shown as a movement along a stable supply curve.
(Occurs ONLY when the price of the good itself currently changes.)

question

Change in Supply

answer

Shown as a shift of the supply curve.

Increase = shift right
Decrease = shift left

question

Four ways that Supply curve will shift

answer

1. Input prices
2. Technology
3. Expectations (buyers)
4. Number of buyers

question

Input Price

answer

Used to make the final product

1. Input price (rises) supply (falls), shift left.
2. Input price (falls) supply (rises), shift right.

question

Technology Changes

answer

1. Technology advances = Supply (rises), shift right.
2. Technology decline = Supply (falls), shift left.

question

Number of Seller

answer

1. Number of sellers (rises) supply (rises), shift right.
2. Number of sellers (falls) supply (falls), shift left.

question

To remove a Surplus...

answer

Seller will lower price until it reaches equilibrium.

question

To remove a Shortage...

answer

The supplier will increase prices until it reaches equilibrium.

question

Three steps in analyzing changes in equilibrium

answer

1. Determine whether the event affects the supply or demand curve.
2. Decide whether the curve shift left or right.
3. Use a supply and demand diagram to analyze the change in equilibrium price and quantity.

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question

Quanity Demanded (Qd)

answer

The amount of a good a buyer is willing and able to purchase at a given price.

question

Law of Demand

answer

Other things equal, the quantity demanded of a good decrease when the price of the good increases.

P (rises), Qd (decreases)
P (falls), Qd (increases)

question

Change in Quantity Demanded

answer

1. Shown as a movement along a stable demand curve.
2. Occurs ONLY when the price of the good itself currently changes.

question

Change in Demand

answer

1. Shown as a shift of the demand curve.

Increase = shift right
Decrease = shift left

question

What shifts the demand curve (d)

answer

1. Income.
2. Prices of related goods.
3. Number of buyers.
4. Tastes.
5. Expectation (buyers)

question

Five causes of the Demand Curve

answer

1. Income
2. Prices of related goods
3. Number of buyers
4. Tastes
5. Expectations (buyers)

question

Two types of Income

answer

1. Normal goods
2. Inferior goods

question

Normal goods

answer

Any good you buy more of with MORE income and less of with LESS income.

- Income (goes up) demand (goes up), shift right.
- Income (goes down) demand (goes down), shift left.

question

Inferior goods

answer

Any good you buy more with LESS income and less of with MORE income

- Income (goes up) demand (goes down), shift left.
- Income (goes down) demand (goes up), shift right.

question

Prices of Related goods (two types)

answer

1. Substitutes
2. Complements

question

Substitutes

answer

Two goods are substitutes if an increase in price of one good leads to an increase in demand for the other good.

question

Complements

answer

Two goods are complements when an increase in the price of one good decreases the demand for the other good.

question

Tastes

answer

If you like something or hear good things about it, you buy more of it
- Demand shift right.

question

Expectations (buyers)

answer

If a buyer expects the price of a good to rise (fall) in the future, we will buy more(less) now.
- Demand shift right(left)

question

Number of buyers

answer

1. Number of buyers (goes up) demand (goes up), shift right.
2. Number of buyers (goes down) demand (goes down), shift left.

question

Quantity Supplied (Qs)

answer

Other things equal, The quantity supplied of a good increases when the price of the good increases.

question

Law of Supply

answer

Other things equal, The quantity supplied of a good increases when the price of the good increases.

P (rises) Qs (rises)
P (falls) Qs (falls)

question

Change in Quantity Supplied

answer

Shown as a movement along a stable supply curve.
(Occurs ONLY when the price of the good itself currently changes.)

question

Change in Supply

answer

Shown as a shift of the supply curve.

Increase = shift right
Decrease = shift left

question

Four ways that Supply curve will shift

answer

1. Input prices
2. Technology
3. Expectations (buyers)
4. Number of buyers

question

Input Price

answer

Used to make the final product

1. Input price (rises) supply (falls), shift left.
2. Input price (falls) supply (rises), shift right.

question

Technology Changes

answer

1. Technology advances = Supply (rises), shift right.
2. Technology decline = Supply (falls), shift left.

question

Number of Seller

answer

1. Number of sellers (rises) supply (rises), shift right.
2. Number of sellers (falls) supply (falls), shift left.

question

To remove a Surplus...

answer

Seller will lower price until it reaches equilibrium.

question

To remove a Shortage...

answer

The supplier will increase prices until it reaches equilibrium.

question

Three steps in analyzing changes in equilibrium

answer

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