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The desire AND ability to purchase a product is called d_________.
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demand
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Other things being equal in latin means c______ p______.
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ceteris paribus
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Ceteris paribus is referred to when talking about demand because we believe p______ to be the most important decision making factor for consumers. But all other factors must remain the same to compare their reaction to price.
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price
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Demand is a h_____________ c__________ that expresses this desire and ability to purchase a product, not at a s_______ price but over a range of prices.
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hypothetical construct, single
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A d___________ s___________ is a t____ that shows the different q_______ demanded per period of t____ at different p______.
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demand schedule, table, quantities, time ,prices
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In summary demand: IARM
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INVOLVES both the desire and ability to purchase a product
ASSUMES that other things are held constant
REFERS to a range of prices
MEASURES quantities over time
ASSUMES that other things are held constant
REFERS to a range of prices
MEASURES quantities over time
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A change in the price of a product results in a c_______ of the q________ d__________.
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change, quantity demanded (think movements along the demand curve)
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Again, change in the quantity demanded is the change in quantity that results from a price change. It is i__________ by a movement along the d______ curve.
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illustrated, demand
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A higher price means a __________ in quantity demanded.
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decrease
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A lower price means an increase in __________ _________.
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quantity demanded
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Explain this graph entitled: C__________ in the q_________ demanded.
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Whenever the price changes, there is a movement along the demand curve. An increase in the price from, say, $21 to $22, causes a decrease in the quantity demanded from 3 to 2. A decrease in the price from $18 to $17 leads to an increase in the quantity demanded from 6 to 7. Neither the demand nor the demand curve, however, changes.
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So if the price of beer falls, and I save $8 a case because of it, its like I got a raise. This is called r_____ i_______. I can spend the $8 on another item now.
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real income
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Income measured by the amount of goods it will b__ is called real income. A pay raise or prices falling affect real income.
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buy
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The affect that a price change has on real income is called i________ e________.
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income effect
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The substitution of one product for another due to a change in its price is called the s___________ e______.
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substitution effect
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When the price of a product drops, we buy more of it because we are more able (the__________ _______) and because we are more willing (the ___________ ______).
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income effect, substitution effect
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The t____ demand by ALL consumers is called m__________ d________
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total, market demand
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Explain this graph entitled: The M______ Demand C______
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At a price of $18, the total or market quantity demanded equals 22 cases. As with individual demand, when the price increases to $22, the quantity demanded will drop, in this case to 6. This is because at a higher price, each individual buys less, and there are fewer people who can afford to or are willing to buy any at all. (Meridith has dropped out of the market.)
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Supply and demand have 2 things in common:
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Both are measure something, hypothetical quantities at various prices and....
Both are flow concepts meaning it measures quantities over a period of time
Both are flow concepts meaning it measures quantities over a period of time
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The quantities that producers are _______ ___ _____ to make over a period of time, is called __________.
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willing and able, supply
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A look at a company's s______ schedule tells us that a higher p_____ means higher p_______ and therefore will lead to higher q_______ produced.
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supply, price, profit, quantities
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Price cannot change supply but can change the q_______ s_______ because price is just one part of other factors when referring to supply.
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quantity supplied.
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Supply refers to the e_______ r__________ between prices and the quantity of this product supplied at each of these prices.
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entire relationship
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Supply should be thought of as "the supply c______."
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curve
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Quantity Supplied refers to one p_______ p______ on the supply curve (not the entire curve).
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particular point
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Quantity Supplied refers to how much of the product is supplied at o__ p______ p_____.
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one particular price
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Quantity Supplied is the horizontal distance between the v________ a___ and the supply curve.
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vertical axis
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With an increase in supply the supply curve s_____ to the r____.
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shifts, right
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With an increase in quantity supplied there has been a m__________ from one point on the supply curve to another point (further to the right).
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movement
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An increase in supply might be caused by: ITRUE
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• an increase in the number of sellers.
• a reduction in the cost of inputs (such as labor or electricity).
• a technological innovation that increases output (such as the development of disease resistant crops).
• unusually good weather (for an agricultural product).
• expectations (e.g., that the price will be lower in the future).
• a reduction in the cost of inputs (such as labor or electricity).
• a technological innovation that increases output (such as the development of disease resistant crops).
• unusually good weather (for an agricultural product).
• expectations (e.g., that the price will be lower in the future).
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With an i________ in quantity supplied the price of the product i________.
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increase, increase
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With an increase in supply at every p_________ p______ , a greater quantity is supplied.
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possible price
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An increase in quantity supplied is caused by an increase in the p_____ of the product
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price
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A supply curve illustrates how much the quantity supplied changes when the p_______ changes.
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price
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Explain this graph entitled: Changes in the Quantity Supplied
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A price change will lead to a movement along the supply curve. An increase in the price from, say, P1 to P2 will cause an increase in the quantity supplied from Q1 to Q2. A decrease in the price from P3 to P4 will lead to a decrease in the quantity supplied from Q3 to Q4. The supply curve itself, however, does not change.
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In summary, a higher price, which deters consumers from buying more, is an incentive for suppliers to produce more. C___________, a lower price induces consumers to buy more but is a reason for suppliers to cut back their output.
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Conversely
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Any relatively open environment in which buyers and sellers can communicate, and that operates without preference is called a m__________
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market
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By a market, then, we mean any relatively open environment in which buyers and sellers can c___________, and that operates without preference.
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communicate,
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The price available to all buyers and sellers of a product is called the m__________ p________.
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market price
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The total quantities demanded is called m_________ d________.
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market demand
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The quantity made available by all suppliers at each possible price is called m__________ s________
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market supply
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The price at which the quantity demanded equals the quantity supplied such that there is neither a surplus nor a shortage is the e_______________ p________.
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equilibrium price
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Explain this graph entitled: How the Market Reacts to Shortages
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At a price of $18, the quantity supplied of 8 is far below the quantity demanded of 22. The horizontal distance between the two shows the amount of the shortage, which is 14. As a result of the shortage, price bidding between consumers will force up the price. As the price increases, the quantity demanded will drop, but the quantity supplied will rise until these two are equal at a quantity of 16
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Equilibrium, in general, means that there is balance between o________ f________; here, those opposing forces are demand and supply.
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opposing forces
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Explain this graph entitled: How the Market Reacts to Surplus
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A price above equilibrium will produce a surplus. At $22, the quantity supplied of 24 exceeds the quantity demanded of 6. The horizontal distance of 18 represents the amount of the surplus. The surplus will result in producers dropping the price in an attempt to increase sales. As the price drops, the quantity demanded increases, while the quantity supplied falls. The equilibrium quantity is 16.
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Explain this graph entitled: An increase in Demand
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Let us say that D1 is the demand for beer that existed last month and D2 is the demand this month. Demand has increased by 6 cases per week at each price, so whatever the price, consumers are willing and able to consume an additional 6 cases. Thus, there has been an increase in the demand.
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4 determinants of demand—FIPP
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preferences, income, prices of related products, and future expectations
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Our willingness or our preference can be changed by: OWASA
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weather, advertising, articles and reports, opinions of friends, special events
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Standard, everyday products are called n____________ p__________.
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normal products
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When income is low, we buy lower-quality staple products that economists call i__________ p_________.
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inferior products
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Products are related if a change in the price of one causes a change in the d________ for the other.
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demand
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There are, in fact, two ways in which products may be related. They may be related as s_________, or they may be related as c_____________.
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substitutes, complements
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An increase in price of the one product leads to a d_________ in the demand for the complementary product.
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decline
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The size of the m__________ p__________ will affect the demand for all products.
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market population
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An increase in the s___ of the population, for example, leads to an increase in the demand for everything from houses and cars to sports equipment and credit cards.
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size
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In addition, a c_______in the d___________ of incomes leads to an increase in the demand for some products and a decrease in the demand for others.
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change, distribution
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