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Law of Demand
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the claim that, other things being equal, the quantity demanded of all good falls when the price of the good rises.
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Quantity demanded
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the amount of a good that buyers bare willing and able to purchase.
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Law of Supply
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the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises.
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Quantity supplied
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the amount of a good that sellers are willing and able to purchase.
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Shortage
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A situation in which quantity supplied is less than quantity demanded.
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Surplus
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A situation in which quantity supplied is greater than quantity demanded.
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Normal good
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A good for which, other things being equal, an increase in income leads to an increase in demand.
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Inferior good
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A good for which, other things being equal, an increase in income leads to a decrease in demand.
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Substitutes
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Where two goods for which an increase in the price of one leads to an increase in the demand for the other.
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Complements
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Where two goods for which an increase in the price of one leads to a decrease in the demand for the other.
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Three Steps for Analyzing Changes in Equilibrium, page 79
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1. Decide whether the event shifts the supply or demand curve (or both).
2. Decide in which direction the curve shifts.
3. Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.
2. Decide in which direction the curve shifts.
3. Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.
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Critical Points
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1. A factor that is not price or quantity of a product/service will cause a change in demand and/or supply.
2. A change in demand means a shift in the demand curve. A change in supply means a shift in the supply curve.
3. A change in demand causes a change in quantity supplied. A change in supply causes a change in quantity demanded.
4. A change in a substitute or compliment causes a change in demand.
5. To determine a new equilibrium, draw the graph based on the factors causing a change in demand and/or supply and quantity demanded and/or quantity supplied.
2. A change in demand means a shift in the demand curve. A change in supply means a shift in the supply curve.
3. A change in demand causes a change in quantity supplied. A change in supply causes a change in quantity demanded.
4. A change in a substitute or compliment causes a change in demand.
5. To determine a new equilibrium, draw the graph based on the factors causing a change in demand and/or supply and quantity demanded and/or quantity supplied.
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1. A change in which of the following will NOT shift the demand curve for hamburgers?
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the price of hamburgers
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2. An increase in ________ will cause a movement along a given demand curve, which is called a change in _______.
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supply, quantity demanded
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3. Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?
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The demand curve shifts to the right.
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4. The discovery of a large new reserve of crude oil will shift the ______ curve for gasoline, leading to a _______ equilibrium price.
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supply, lower
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5. If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?
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Prices and quantities both rise.
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6. Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?
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an increase in the price of grapes, an input into jelly
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7. "When a cold snap hits Florida, the price of orange juice __________ in supermarkets throughout the country."
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rises
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8. "When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts ________."
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falls
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9. "When a war breaks out in the Middle East, the price of gasoline _________ and the price of a used Cadillac _________."
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rises, falls
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10. An increase in the demand for notebooks _________ the quantity of notebooks demanded and _________ the quantity supplied.
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raises, raises
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11. Consider the market for minivans, people having more children causes
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an increase in demand
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12. Consider the market for minivans, a strike by steelworkers raises steel prices causes
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a decrease in supply
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13. Consider the market for minivans, engineers develop new automated machinery for the production of minivans means
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an increase in supply
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14. Consider the market for minivans, the price of SUVs rises means a(n) _______ in minivans.
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increase
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15. Consider the market for minivans, a stock market crash lowers people's wealth means
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a decrease in supply
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16. Consider the markets for film streaming services, a technological advance reduces the cost of manufacturing TV screens means
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an increase in supply
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17. Over the past 40 years, technological advances have reduced the cost of computer chips. So, the manufacturing of computers has had
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an increase in supply
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18. Over the past 40 years, technological advances have reduced the cost of computer chips. So, the demand of computer software has had
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an increase in demand
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19. Consider the markets for sweatshirts, a hurricane in South Carolina damages a cotton crop for sellers means
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a decrease in supply
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20. Based on #19, the price _______ and the quantity _________.
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increases, decreases
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21. Based on #20, there is a(n) ________ movement on the _________ curve.
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increase, demand
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22. Consider the markets for sweatshirts, the price of leather jackets falls means for consumers
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a decrease in demand for sweatshirts
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23. Based on #22, the price ________ and the quantity ________.
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decreases, decreases
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24. Based on #23, there is a(n) _______ movement on the _________ curve.
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decrease, supply
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25. Consider the markets for sweatshirts, all colleges requiring morning exercise in appropriate attire means for consumers
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an increase in demand
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26. Based on #25, the price _________ and the quantity _________.
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increases, increases
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27. Based on #26, there is a(n) ________ movement on the __________ curve.
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increase, supply
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28. Consider the markets for sweatshirts, the invention of new knitting machines means
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an increase in supply
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29. Based on #28, the price _________ while the quantity ________.
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decreases, increases
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30. Based on #29, there is a(n) _________ movement on the _________ curve.
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decrease, demand
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1. A market is
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a group of buyers and sellers of a particular good or service.
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2. A competitive market is
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where there are many buyers and many sellers so that each has a negligible impact on the market price.
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3. The quantity demanded is
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the amount of a good that buyers are willing and able to purchase
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4. The Law of Demand is
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the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises.
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5. A demand schedule is a table that shows the relationship between the
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price of a good and the quantity demanded.
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6. The demand curve is a graph of the relationship between
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the price of a good and the quantity demanded.
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7. The demand curve can be shifted by
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income. tastes. expectations. number of buyers. All of the above.
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8. A normal good is
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a good for which, other things being equal, an increase in income leads to an increase in demand.
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9. An inferior good is
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a good for which, other things being equal, an increase in income leads to a decrease in demand.
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10. A substitute is
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where two goods for which an increase in the price of one leads to an increase in the demand for the other.
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11. The complements are
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where two goods for which an increase in the price of one leads to a decrease in the demand for the other.
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12. The quantity supplied is
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the amount of a good that sellers are willing and able to purchase.
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13. The Law of Supply is
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the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises.
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14. A supply schedule is a table that shows the relationship between the
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price of a good and the quantity supplied.
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15. The supply curve is a graph of the relationship between
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the price of a good and the quantity supplied.
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16. The supply curve can be shifted by
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input prices. technology. expectations. number of sellers. All of the above.
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17. The equilibrium is
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a situation in which the market price has reached the level at which quantity supplied is equal to quantity demanded.
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18. The equilibrium price is
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the price that balances quantity supplied and quantity demanded.
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19. The equilibrium quantity is
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the quantity supplied and the quantity demanded at the equilibrium price.
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20. A surplus is
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a situation in which quantity supplied is greater than quantity demanded.
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21. A shortage is
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a situation in which quantity supplied is less than quantity demanded.
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22. The Law of Supply and Demand is
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the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.
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23. Suppose the price of ice cream increases which, in turn, causes the demand of yogurt to rise. It can be concluded that ice cream and yogurt are _________________.
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substitutes
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24. If steak is a normal good then an increase in consumer incomes will cause the demand for steak to
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increase.
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25. If microwave pizza is an inferior good then a decrease in consumer incomes will cause the demand for microwave pizza to ________________.
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increase
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26. Consider the market for the normal good hot dogs. (Note: hot dogs = buns and wieners combined). Suppose the price of mustard increases. Once equilibrium is re-established in the market it can be predicted that the equilibrium quantity of hotdogs will ________________.
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decrease
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27. Consider the market for the normal good hot dogs. (Note: hot dogs = buns and wieners combined). Suppose the price of mustard increases. Once equilibrium is re-established in the market it can be predicted that the equilibrium price of hotdogs will _________________.
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decrease
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28. Consider the market for the normal good hamburgers. (Note: Hamburgers = buns and beef patties combined). Suppose the price of hamburgers increase. A ___________ will exist in the market.
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surplus
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29. Consider the market for the normal good hamburgers. (Note: Hamburgers = buns and beef patties combined). Suppose the number of hamburger consumers increases and the wages of hamburger workers decrease. Once equilibrium is re-established in the market it can be predicted that the equilibrium quantity of hamburgers will ________________.
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increase.
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30. Consider the market for the normal good hamburgers. (Note: Hamburgers = buns and beef patties combined). Suppose the number of hamburger consumers increases and the wages of hamburger workers decrease. Once equilibrium is re-established in the market it can be predicted that the equilibrium price of hamburgers will ________________.
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Be indeterminate. (really can't tell)
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31. Consider the market for the normal good hotdogs. (Note: hotdogs = buns and wieners combined). Suppose the price of bread increases. Once the equilibrium is re-established in the market it can be predicted that the equilibrium price of hotdogs will _______________.
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increase.
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32. Consider the market for the normal good hamburgers. (Noe: Hamburgers = buns and beef patties combined). Suppose the incomes of hamburger consumers decrease and the wages of hamburger workers decrease. Once equilibrium is established in the market it can be predicted that the equilibrium quantity of hamburgers will ________________.
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decrease.
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33. If Steak-Ums is an inferior good (opposites/negative) then an increase in consumer incomes will cause the its demand to
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decrease.
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34. Consider the market for the normal good steak burgers. (Note: steak burgers = buns and steak patties combined). Suppose the price of steak burgers decrease. A ______________ will exist in the market.
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shortage
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35. Consider the market for the normal good Steak burgers. (Note: steak burgers = buns and steak patties combined). Suppose the number of steak burger consumers increases and the wages of steak burger workers decrease. Once equilibrium is re-established in the market it can be predicted that the equilibrium quantity of steak burgers will ________________.
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increase.
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Possible Bonus Question: What are the Ten Principles of Economics?
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1. People Face Trade-offs
2. The Cost of Something Is What You Give Up to Get It
3. Rational People Think at the Margin
4. People Respond to Incentives
5. Trade Can Make Everyone Better Off
6. Markets Are Usually a Good way to Organize Economic Activity
7. Governments Can Sometimes Improve Market Outcomes
8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services
9. Prices Rise When the Government Prints Too Much Money
10. Society Faces a Short-Run Trade-off between Inflation and Unemployment
2. The Cost of Something Is What You Give Up to Get It
3. Rational People Think at the Margin
4. People Respond to Incentives
5. Trade Can Make Everyone Better Off
6. Markets Are Usually a Good way to Organize Economic Activity
7. Governments Can Sometimes Improve Market Outcomes
8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services
9. Prices Rise When the Government Prints Too Much Money
10. Society Faces a Short-Run Trade-off between Inflation and Unemployment
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