Scribd
Upload
14 views

Chapter 3

Chapter 3 covers key concepts in demand and supply, including demand schedules, demand curves, and the law of demand, which states that price changes affect quantity demanded. It also explains factors that shift demand and supply curves, such as changes in income, tastes, and input prices. Additionally, the chapter discusses market equilibrium and how shifts in demand or supply affect equilibrium prices and quantities.

Uploaded by

ticam27358
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
14 views

Chapter 3

Chapter 3 covers key concepts in demand and supply, including demand schedules, demand curves, and the law of demand, which states that price changes affect quantity demanded. It also explains factors that shift demand and supply curves, such as changes in income, tastes, and input prices. Additionally, the chapter discusses market equilibrium and how shifts in demand or supply affect equilibrium prices and quantities.

Uploaded by

ticam27358
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Chapter 3

Vocabulary
Demand Schedule: A table that shows the relationship between the price of a product and the
quantity of the product demanded
Demand Curve: A curve that shows the relationship between the price of a product and the
quantity of the product demanded
Ceteris Paribus: All is equal
Quantity Demand: The amount of a good/service that a consumer is willing and able to purchase
at a given price
Law of Demand: When the price of a product falls, the quantity demand of the product will
increase, and when the price of a product rises, the quantity demand of the product will
decrease
Substitution Effect: The change in the quantity demand of a good that results from a change in
price, amending the good more or less expensive relative to other goods, holding constant the
effect of the price change on consumer purchasing power
Income Effect: Change in the quantity demand of a good that results form the effect of a change
in the good’s price on a consumers’ purchasing power, holding all other factors constant
Normal Goods: Goods for which the demand increases as income rises and decrease as income
falls
Inferior Goods: Goods for which the demand increases as income falls and decreases as income
rises
Demographics: The characteristics of a population with respect to age, race, and gender
Supply Schedule: A table that shows the relationship between the price of a product and the
quantity of the product supplied
Supply Curve: A curve that shows the relationship between the price of a product and the
quantity of the product supplied
Quantity Supplied: The amount of a good or service that a firm is willing and able to supply at a
given price
Law of Supply: Increases in price cause increases in the quantity supplied, and decreases in price
causes decreases in the quantity supplied
Input: Anything used in the production of a good or service
Technological Change: A firm may experience a positive or negative change in its ability to
produce a given lvl of output with a given quantity input
Substitutes in Production: Many firms can produce and sell alternative products
Complements in Production: Sometimes, two products are necessarily produced together
Change in Quantity Supplied: A change in the price of the product being examined causes a
movement along the supply curve
Change in Supply: Any other change affecting supply causes the entire supply curve to shift
Market Equilibrium: A situation in which quantity demanded equals quantity supplied
Competitive Market Equilibrium: A market equilibrium in markets with many buyers and sellers
that are perfectly competitive markets
Surplus: Above equilibrium line
Shortage: Bellow equilibrium line

What Explains the Law of Demand?


 When the price of a good falls, two effects take place:
o Substitution effect: Consumers substitute toward the good whose price has fallen
o Income effect: Consumers have more purchasing power, which is like an inc. in
income

Shifting the Demand Curve


 A change in something other than price that
affects demand causes the entire demand curve to shift
o A shift to the right (D1 to D2) is an increase in demand
o A shift to the left (D1 to D3) is a decrease in demand
 As the demand curve shifts => Quantity demanded will change
(Even if the price doesn’t change)
o The quantity demanded changes at every possible price

Variables That Shift Market Demand


 Changes in income of consumers
o Normal goods: Income rises => demand increases; Income falls => Demand
decreases
 Exs: New clothes, restaurant meals, vacations
o Inferior goods: Income falls => demand increases; Income rises => demand
decreases
 Exs: Second-hand clothes, instant noodles
 Effects of changes in the price of related goods
 Changes in tastes
 Change in population/demographics
 Natural disaster and pandemics
 Changes in expectations about future prices
o Future products are substitutes for current products
o An expected increase in the price tomorrow increases demand tdy
o And expected dec. in the price tmr dec. demand tdy

A Change in Demand vs A Change in Quantity Demanded


 Change in quantity demanded: Change in price of product
being examined => movement along the demand curve
 Change in demand: Any other change affecting demand
=> the entire demand curve shifts

Shifting the Supply Curve


 A change in something other than price that affects supply causes
the entire supply curve to shift
o A shift to the right (S1 to S3) is an increase in supply
o A shift to the left (S1 to S2) is a decrease in supply
 Supply curve shifts => the quantity supplied will change (even if
the price doesn’t change)
o The quantity supplied changes at every possible price
 Change in prices of inputs
o Increase in price of an input decreases the profitability of
selling the good => causes a decrease in supply
o Decrease in price of an input increases the profitability of
selling the good => causes a increase in supply
 Number of firms and expected future prices
o More firms = supply increase
o Fewer firms = supply decrease
o If a firm anticipates that the price of its product will be higher in the future, it might
dec. its supply tdy to increase it in the future
 Natural disasters and pandemics
o Less of a good will be supplied due to disruptions in production

The Effect of an Increase in Demand on Equilibrium (EX)


 Income increases => demand shifts to right
(D1 to D2)
o Equilibrium price rises (P1 to P2)
o Equilibrium quantity rises (Q1 to Q2)

The Effect of an Increase in Supply on Equilibrium (EX)


 The graph shows the market for athletic shoes as
a new shoemaker, Allbirds, enters the market
 When Allbirds enters, more shoes supplied at
any given price – an increase in supply from S 1 to S2
o Equilibrium price falls form P1 to P2
o Equilibrium quantity rises Q1 to Q2

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy