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Eco- CH. 3
Demand, Supply, & Equilibrium
| Term | Definition |
|---|---|
| demand | the desire, ability and willingness for consumers to buy goods & services at different prices |
| law of demand | -certeris paribus -price inc., quantity demanded dec. -P dec., QD inc. |
| change in QUANTITY DEMANDED | caused by an increase or decrease in selling prices -shown on a graph by moving from pt. -> pt. on a demand curve |
| normal good | when a rise in income INCREASES the demand for the good & vice versa |
| inferior good | when a rise in income DECREASES the demand for the good & vice versa |
| substitute good | goods that can be used in place of one another |
| complementary good | -goods that are used in service of others -if demand for one inc., the other inc. |
| change in demand | 1) selling prices remain constant or the same 2) shown on a graph by the curve shifting right for INC, left for DEC 3) caused by 7 non-price demand factors |
| 7 factors ---> to change in demand (change in....) | 1) consumer income for a normal good 2) consumer income for an inferior good 3) consumer tastes 4) price of a substitute good 5) price of a complementary good 6) expectations of future selling prices 7) the number of consumers/population |
| supply | different amounts of a good or a service that businesses, producers, or suppliers will offer for sale at various selling prices |
| law of supply | -ceteris paribus -*assume demand is constant* -price inc., quantity supplied inc. -P dec., QS dec. |
| change in QUANTITY SUPPLIED | -caused by an increase or decrease in selling prices -shown on a graph by moving from pt. -> pt. on a supply curve |
| change in supply | -prices remain the same -shown on a graph by the curve shifting right for INC, left for DEC -caused by 7 non-selling price supply factors |
| 7 factors ---> to change in supply (1-3) | 1) wages paid to workers (dec. wages, inc. supply, vice versa) 2) cost of resources, inputs, materials, PHYSICAL CAPITAL (inc. costs, dec. supply, vice versa) 3) change in tech. (better tech., inc. supply) |
| 7 factors ---> to change in supply (4-5) | 4) change in worker productivity (workers more productive, supply inc., vice versa) 5) # of producers (more producers, more supply) |
| 7 factors ---> to change in supply (6-7) | 6) gov't policies (a. chng in taxes -> higher supply, b. chng in gov't SUBSIDIES -> prod. more goods, c. chng in regs -> dec supply) 7) chng in future expected prices by producers (if prices are expected to inc. in the future, supply now dec., vice versa |
| equilibrium | -quantity demanded=quantity supplied (QD=QS) -intersection of the 2 curves -competitive markets move here on their OWN -changed by 7 demand/supply factors |
| shortage | -quantity demanded > quantity supplied (QD>QS) -prices are BELOW equilibrium -pressure on prices to go up (inc.) |
| surplus | -quantity supplied > quantity demanded (QS>QD) -prices are ABOVE equilibrium -pressure on prices to go down (dec.) |
| price floor | gov't set MINIMUM price for a good, service, or resource ex: minimum wage |
| price ceiling | gov't set MAXIMUM price for a good, service, or resource ex: rent for NYC apartments |
| market demand curve | shows relationship between the price of a good & the quantity that ALL consumers together are willing to buy |
| market supply curve | shows relationship between the market price & quantity supplied by ALL firms |
Created by:
bbell123
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