Week 2 - Where Prices Come From: The Interaction of Demand and Supply Flashcards
What is the ceteris paribus condition?
The requirement that when analysing the relationship between two variables such as price and quantity demanded, other variables must be held constant.
What is quantity demanded?
The amount of a good or service that a consumer is willing and able to buy at a given price.
What is a demand schedule?
A table showing the relationship between the price of a product and the quantity of the product demanded.
What is a demand curve?
A curve that shows the relationship between the price of a product and the quantity of the product demanded.
What is market demand?
The demand by all the consumers of a given good or service.
What is the law of demand?
When holding everything else constant,
- When the price of a product falls, the quantity demanded will increase.
- When the price of a product rises, the quantity demanded will decrease.
What is a change in quantity demanded?
A change in the quantity of a good that people plan to buy that results from a change in the price of the good.
How is a change in quantity demanded shown?
Shown as a movement alone the demand curve (up or down).
What is a change in demand?
A change in the quantity that people plan to buy when any influence other than the price of the good changes.
How is a change in demand shown?
A change in demand means that there is a new demand schedule and a new demand curve.
- When demand decreases, the demand curve shifts left.
- When demand increases, the demand curve shifts right.
What variables shift market demand?
Income (normal and inferior goods), prices of related goods (substitutes, complements), tastes/preferences, population and demographics (number of buyers), expected future prices.
What is the difference between a change in demand and change in quantity demanded?
- A change in demand refers to a shift in the demand curve. (Occurs due to a change in the variables, other than the product’s own price, that affect demand.)
- A change in the quantity demanded refers to a movement along the demand curve as a result of a change in the product’s price.
What is quantity supplied?
The amount of a good or service that a firm is willing and able to supply at a given price.
What is a supply schedule?
A table showing the relationship between the price of a product and the quantity of the product supplied.
What is a supply curve?
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
What is market supply?
The supply by all the firms of a given good or service.
What is the law of supply?
When holding everything else constant,
- An increase in the price of a product causes an increase in the quantity supplied.
- A decrease in the price of a product causes a decrease in the quantity supplied.
What is a change in quantity supplied?
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 good.
How is a change in quantity supplied shown?
Shown as a movement along the supply curve (up or down).
What is a change 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.
How is a change in supply shown?
A change in supply means there is a new supply schedule and new supply curve.
- When supply decreases, the supply curve shifts left.
- When supply increases, the supply curve shifts right.
What variables shift supply?
Prices of inputs (resources), technological change (productivity), prices of substitutes in production, number of firms in the market, expected future prices (including future prices of resources).
What is the difference between a change in supply and a change in quantity supplied?
- A change in supply refers to a shift in the supply curve. (Occurs due to a change in the variables, other than the product’s own price, that affect supply.)
- A change in quantity supplied refers to a movement along the supply curve as a result of a change in the product’s price.
