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ECON 1123: CHAPTER 3
competitive market |
market in which there are many buyers and sellers of the same good or service
|
supply and demand model |
used to describe the behavior of a competitive market
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key elements of supply and demand model |
1. demand curve
2. supply curve 3. factors that shift demand curve/ supply curve 4. market equilibrium, including equilibrium price/quantity 5. the way the market equilibrium changes when the supply or demand curve shifts
|
demand schedule |
table that shows how much of a good or service consumers will want to buy at different prices
|
demand curve |
graphical representation of the demand schedule
shows the relationship between quantity demanded and price
|
law of demand |
says that the higher the price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service
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determinants of demand |
1. change in price of related goods/services (substitutes & complements)
2. change in income 3. change in tastes 4. change in expectations 5. change in number of consumers
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if A and B are substitutes and the price of B rises, demand for A... |
increases |
if A and B are substitutes and the price of B falls, demand for A... |
decreases
|
if A and B are complements and the price of B rises, demand for A... |
decreases
|
if A and B are complements and the price of B falls demand for A... |
increases |
if A is a normal good and income rises, demand for A... |
increases
|
if A is a normal good and income falls, demand for A... |
decreases
|
if A is an inferior good and income rises, demand for A... |
decreases |
if A is an inferior good and income falls, demand for A... |
increases
|
if tastes change in favor of A, demand for A... |
increases
|
if tastes change against A, demand for A... |
decreases
|
if the price of A is expected to rise in the future, demand for A... |
increases today
|
if the price of A is expected to fall in the future, demand for A... |
decreases today
|
if A is a normal good and income is expected to rise in the future, demand for A... |
may increase today
|
if A is a normal good and income is expected to fall in the future, demand for A... |
may decrease today
|
if A is an inferior good and income is expected to rise in the future, demand for A... |
may decrease today
|
if A is an inferior good and income is expected to fall in the future, demand for A... |
may increase today
|
if the number of consumers of A rises, market demand for A... |
increases |
if the number of consumers of A falls, market demand for A... |
decreases |
supply curve |
shows the relationship between quantity supplied and price
|
determinants of supply |
1. change in input prices
2. change in the prices of related goods/services 3. change in technology 4. change in expectations 5. change in the number of producers
|
if the price of an inputed used to produce A rises, supply of A... |
decreases
|
if the price of an input used to produce A falls, supply of A... |
increases
|
if A and B are substitutes in production and the price of B rises, supply of A... |
decreases |
if A and B are substitutes in production and the price of B falls, supply of A... |
increases
|
if A and B are complements in production and the price of B rises, supply of A... |
increases
|
if A and B are complements in production and the price of B falls, supply of A.. |
decreases
|
if the technology used to produce A improves, supply of A... |
increases
|
if the price of A is expected to rise in the future, supply of A... |
decreases today
|
if the price of A is expected to fall in the future, supply of A... |
increases today
|
if the number of producers of A rises, market supply of A... |
increases
|
if the number of producers of A falls, market supply of A... |
decreases |
when demand increases and supply decreases, what happens to equilibrium price and quantity? |
price rises but the change in quantity is ambiguous
|
wen demand decreases and supply increases, what happens to equilibrium price and quantity? |
price falls but the change in quantity is ambiguous
|
when both demand and supply increase, what happens to equilibrium price and quantity? |
quantity increases but change in price is ambiguous
|
when both demand and supply decrease, what happens to equilibrium price and quantity? |
quantity decreases but change in price is ambiguous.
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