Economics- Chapter 3: Individual Markets: Demand & Supply

Front 1

The principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price. As price falls, the quantity demanded rises, and as price rises, the quantity demanded falls.

Back 1

Law of Demand

Front 2

What are the three explanations for the Law of Demand?

Back 2

1. The law of demand is consistent with common sense.
2. Consumption is subject to diminishing marginal utility.
3. Income effect and substitution effect

Front 3

The ______ _______ indicates that a lower price increases the purchasing power of a buyer's money income, enabling the buyer to purchase more of the product than she or he could buy before.

Back 3

Income effect

Front 4

The ________ ______ suggests that at a lower price buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive.

Back 4

Substitution effect

Front 5

Factors other than price that determine the quantities demanded of a good or service.

Back 5

Determinants of demand

Front 6

A change in the quantity demanded of a good or service at every price.

Back 6

Change in demand

Front 7

Increase in demand is shown as a shift of the demand curve to the ______.

Back 7

Right

Front 8

Decrease in demand occurs when consumers buy less at each possible price and is indicated by a ________ shift.

Back 8

Left

Front 9

A change in the quantity supplied of a good or service at every price.

Back 9

Change in supply

Front 10

A movement from one point to another point- from one price-quantity combination to another- on a fixed demand schedule or demand curve. The cause of such a change is an increase or decrease in the price of the product under consideration.

Back 10

Change in quantity demanded

Front 11

The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease. As price rises, the quantity supplied rises; as price falls, the quantity supplied falls.

Back 11

Law of supply

Front 12

Factors other than price that determine the quantities supplied of a good or service.

Back 12

Determinants of supply

Front 13

What are the determinants of supply?

Back 13

1. Resource prices
2. Technology
3. Taxes and subsidies
4. Prices of other goods
5. Price expectations
6. Number of sellers

Front 14

A change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right.

Back 14

Change in supply

Front 15

A movement from one point to another on a fixed supply curve.

Back 15

Change in quantity supplied

Front 16

The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.

Back 16

Surplus

Front 17

The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.

Back 17

Shortage

Front 18

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and tehre is no tendency for price to rise or fall.

Back 18

Equilibrium price or market-clearing

Front 19

(1) The quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit-maximizing output of a firm.

Back 19

Equilibrium quantity

Front 20

Supply is constant and demand increases. An increase in demand raises both equilibrium price and equilibrium quantity. Conversely, a decrease in demand reduces both equilibrium price and equilibrium quantity.

Back 20

Changes in demand

Front 21

Demand is constant but supply increases. The new intersection of supply and demand is located at a lower equilibrium price but at a higher equilibrium quantity. An increase in supply reduces equilibrium price but increases equilibrium quantity.

Back 21

Changes in supply

Front 22

Sets the maximum legal price a seller may charge for a product or service. The rationale is that they purportedly enable consumers to obtain some "essential" good or service that they could not afford at the equilibrium price.

Back 22

Price ceiling

Front 23

The minimum price fixed by the government. A price at or above this is legal; a price below it is not.

Back 23

Price floor