Week 2 Flashcards
(33 cards)
What do demand and supply curves do?
explain how prices are determined
What slope is the demand curve
downward
Why is the demand curve downward sloping
because consumers want less at a higher price and more at a lower price
What is the law of demand
holding all else constant when the price of a good product falls the quantity demanded will rise and when the price falls the quantity demanded will fall
What 2 things explain the law of demand
1: Substitution Effect
2: Income Effect
What is the substitution effect
Demand changing due to change in price making good less or more appealing relative to substitute goods
What is the income effect
Demand changing resulting from effect of change in goods price on consumers purchasing power
What happens when market demand shifts?
the quantity demanded at every price changes
How many variables shift market demand?
IPRGTDEFP
5
How does income shift market demand
incomes consumers have affect their willingness to buy a specific good. more of normal goods less of inferior goods
how do prices of related goods shift market demand
prices of substitutes and complementary goods shift demand
how does taste shift demand
as tastes for goods change demand changes with it
how do demographics shift demand
as demographics change demand for different goods change
how do expected future prices shift demand
higher prices in future lead to higher present demand while lower prices in future lead to lower present demand
does a change in price shift demand?
no it does not shift the demand curve but leads to a movement up or down the curve
what slope is the supply curve
upward sloping
why is the supply curve upward sloping
because firms want to supply more at a higher price and less at a lower price
what is the law of supply
Increases in the price of a product causes an increase in the quantity supplied and decreases in the price cause a decrease in the quantity supplied
how many variables shift supply
pitpsnofexp
5
how do price of inputs shift supply
if input prices are lower supply will increase if higher supply will decreases
how does technological change shift supply
technological change increases productivity which makes producing cheaper increasing supply
how do prices of substitutes in production shift supply
if the price/demand of a substitute is higher firms will produce more of that product then the current product
how do number of firms shift supply
more firms increases supply less firms decreases supply
how do expected future prices shift supply
higher prices in future leads to lower present supply lower prices in future leads to higher present supply
