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Flashcards in Chapter Four Deck (25):
1

Explain quantity demanded

Quantity demanded is the amount of a good, service or resource that people are willing and able to buy during a specificed period at a specified price. The quantity demanded is an amount per unit of time.

2

Explain the law of demand

Other things remaining the same: it the price of goods rises, the quantity demanded of that good decreases and if the price of goods falls, the quantity demanded of that good increases.

3

Explain demand, the demand schedule and the demand curve

Demand is the relationship between the quantity of demanded and re price of a good when all other influences on buying plans remaining the same. Demand is illustrated by a demand schedule and curve.

Demand schedule: is a list of the quantities demanded at each different price when all the other influences in buying plans remain the same.

Demand curve: is a graph of the relationship between the quantity demanded of a good and it's price when all other influences on buying plans remain the same.

4

Explain changes in demand

Change in demand is a change in the quantity that people plan to buy when any influence other than the price of the good changes. A change in demand means that there is a new demand schedule and a new demand curve.

5

What are the main influences on buying plans that change demand?

Prices of related goods: a substitute is a good that can be consumed in place of another good eg apples and oranges. The demand for a good increases of the price of one of its substitutes rises and the demand of a good decreases if the price of one of its substitutes falls. A complement is a good that is consumed with another goods eg ice cream and fudge sugar. The seamen for a good increases, if the price of one of its complements falls and the demand decreases if the price of complement rises

Expected future prices: a rise in the expected future price of a good increases the current demand for that good. A fall in the expected future price of a good decreases current demand for that good. For exmae if the price of a computer is expected to fall next month, the demand for computers today decreases.

6

How to illustrate changes in buying plans

A change in the quantity demanded is a change in the quantity of a good that people plan to buy that results from a change in the price of the good

A change in demand is a change in the quantity that people plan to buy when any influence other than the price of the good changes

A decrease in quantity demanded: movement up along the demand curve D0. Change in demand: leftward shift to d1

Increase in quantity demanded: down the demand curve d0. Increase in demand: shifts right to create D2

7

Explain supply

Quantity supplied is the amount of a good, service or resource that people are willing and able to sell during a specified period at a specified price.

The law of supply: other things remaining the same: if the price of a good rises, the quantity supplied of that good increases and if the price of a good falls, the quantity supplied of that good decreases

8

Explain supply schedule and supply curve

Supply is the relationship between the quantity supplied of a good and the price of the good when all other influences on selling plans remain the same. Supply is illustrated by a supply schedule and a supply curve.

A supply schedule is a list of the quantities supplied at each different price when all other influences on selling plans remain the same. A supply curve is a graph of the relationship between the quantity supplied and the price of the good when all other influences on selling plans remain the same.

9

What causes changes in supply

A change in supply is a change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes. A change in supply means that there is a new supply schedule and a new supply curve. The main influences on selling plans that change supply are price of related goods, prices of resources and other inputs, expected future prices, number of sellers and productivity.

10

Explain prices of related goods

A change in the price of one good can bring a change in the supply of another good.

A substitute in production is a good that can be produced in place of another good.

A complement in production is w good that is produced along with another good.

11

What is prices of resources and other inputs

Resource and input prices influence the cost of production. And the more it costs to produce a good the smaller is the quantity supplied of that good.

12

What is the expected future prices

Expectations about future prices influence supply. Expectations of future prices of resources also influence supply.

13

Explain number of sellers

The greater the number of sellers in a market, the larger is supply

14

Explain productivity

Productivity is output per unit of input. An increase in productivity lowers costs and increases supply. For example an advance in technology increases supply. A decrease in productivity raises costs and decreases supply. For example a severe hurricane decreases supply

15

How to illustrate a change in selling plans

A change in quantity supplied is a change in the quantity of a good that suppliers plan to sell that results from a change in the price of the goods.

A change in supply is a change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.

Decrease in quantity supplied: moves down along supply curve

A decrease in supply: supply decreases and the supply curve shifts leftward s0 to s1

Increase in quantity supplied: moves up the supply curve

Increase in supply: shifts right to s2

16

Explain market equilibrium

Market equilibrium occurs when the quantity demanded equals the quantity supplied. At market equilibrium, buyers and sellers plans are consistent. Equilibrium price is the price at which the quantity demanded equals the quantity supplied. Equilibrium quantity: is the quantity bought and sold at the equilibrium price.

17

Explain shortage and surplus

When there is a shortage, the price rises. When there is a surplus, the price falls. Shortage is the quantity demanded exceeds the quantity supplied. Surplus is the quantity supplied exceeds the quantity demanded.

18

What are the three questions that help predict price changes

Does the event change demand or supply
Does the event increase or decrease demand or supply - shift the demand curve or the supply curve right or left?
What are the new equilibrium price and equilibrium quantity and how have they changed?

19

Demand curve changes

When demand changes: the supply curve does not shift, but there is a change in the quantity supplied and equilibrium price and equilibrium quantity change in the same direction as the change in demand

20

Supply changes

The demand curve does not shift, but there is a change in the quantity demanded. Equilibrium price changes in the same direction as the change in supply. Equilibrium quantity changes in the opposite direction to the change in supply.

21

What happens when demand and supply increases

Increases the equilibrium quantity, the change in the equilibrium price is ambiguous because the increase in demand raises the price and increase in supply lowers the price

22

What happens when both demand and supply decrease

Decreases the equilibrium quantity and the change in the equilibrium price is ambiguous because the decrease in demand lowers the price + decease in supply raises the price

23

What happens when demand decreases and supply increases

Lowers the equilibrium price. The change in the equilibrium quantity is ambiguous because the decrease in demand decrease the quantity and increase in supply increases the quantity.

24

What happens when demand increases and supply decreases

Raises the equilibrium price. The change in the equilibrium quantity is ambiguous because the increase in demand increases the quantity and the decrease in supply decreases re quantity

25

Explain price rigidities

Price adjustments bring market equilibrium but suppose that for some reason, the price in a market does not adjust. What happens then? The answer depends on why the price doesn't adjust. There are three possibilities.

Price floor: a price floor is government regulation that places a lower limit on the price at which a particular good, service or factor of production may be traded. An example is minimum wage in labour markets. A minimum wage law is a government regulation that makes hiring labour for less than a specified wage illegal. Trading below the price floor is illegal.

Price ceiling or price cap: is a government regulation that placed an upper limit on the price at which a particular good, service or factor of production may be traded. An example is a price cap on apartment rents.

Sticky price: in most markets, a law or regulation does not restrict the price. But in some markets, the buyer and seller agree on a price for a fixed period. In other markets, the seller sets a price that changes infrequently. In these markets, prices do adjust but not quickly enough to avoid shortages or surpluses