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Chapter 3

Microeconomics

TermDefinition
Competitive Market -many buyers and sellers -same good or service
Supply and Demand Model model of how competitive a market works/5 key elements: demand curve, supply curve, demand and supply curve shifts, market equilibrium, changes in market equilibrium
Demand Schedule table that shows how much of a good or service consumers will buy at different prices
Law of Demand negative relationship btw the quantity demanded and the price - quantity demanded increases as price decreases -bc of this demand curve is downward sloping
Increase in Demand the quantity demanded rises for any given price/increase in pop. generates this (know the difference btw demand-broad and quantity demanded-specific quantity associated with specific price)
Movement along the demand curve change in the quantity demanded of a good that is the result of a change in that good's price (different from the shift in a demand curve)
Substitutes two goods are substitutes if a fall in the price of one of the goods makes consumers less willing to buy the other good
Complements two goods are complements if a fall in the price of one good makes people more willing to buy the other good
Normal Goods when a rise in income increases the demand for a good (normal case) it is a normal good
Inferior Goods when a rise in income decreases the demand for a good
Market Demand Curve the horizontal sum of the individual demand curves of all consumers in that market
A decrease in the price of a good will result in: increase in the quantity demanded
If the demand for tires goes down when the price of gas goes up, then tires and gas are: complements
Supply Schedule table that shows how much of a good or service producers will supply at different prices - as price falls, the quantity supplied falls
Supply Curve graphically shows how much of a good or service producers are willing to sell at any given price - typically upward sloping
Increase in Supply a greater quantity is supplied for any given price - a shift is a change in the quantity supplied of a good at any given price
Movement along the supply curve change in the quantity supplied of a good that is the result of a change in that good's price (different from shift)
Decrease in Supply leftward shift of the supply curve: at any given price there is a decrease in the quantity supplied
Input a good that is used to produce another good ex; labor, machinery, raw materials
What causes a Supply Curve to Shift? -Changes in input -Changes in the prices of related goods and services -Changes in technology -Changes in expectations -Changes in the number of producers
Market Supply Curve horizontal sum of the individual supply curves of all firms in that market
If the price of a commodity increases, you can expect the: quantity supplied to increase
A leftward shift of a supply curve could be caused by: an increase in the cost of an input
Equilibrium in a competitive market: when the quantity demanded of a good equals the quantity supplied of that good
Equilibrium price (AKA market-clearing price) the price at which the competitive market is at equilibrium -every buyer finds a seller and vice versa
Equilibrium quantity quantity of the good bought and sold at that price
Market Equilibrium occurs where the supply curve and demand curve intersect -equilibrium price is shown on y-axis -equilibrium quantity is shown on the x-axis
Surplus exists when the quantity supplied exceeds the quantity demanded/occurs when the price is above its equilibrium level
Shortage exists when the quantity supplied falls short of the quantity demanded/occurs when the price is below its equilibrium level
Equilibrium and Shifts of the Demand Curve: -Increase in demand: leads to movement along supply curve due to a higher equilibrium price and higher equilibrium quantity -Decrease in supply: leads to a movement along the demand curve due to a higher equilibrium price and lower equilibrium quantity
Technology Shifts of the Supply Curve -Increase in Supply Curve: leads to a movement along the demand curve to a lower equilibrium price and higher equilibrium quantity
Simultaneous Shifts of Supply and Demand (small decrease in supply) Small decrease in supply-supply shift to left Large increase in demand-demand shifts to right -The increase in demand dominates the decrease in supply
Simultaneous Shifts of Supply and Demand (large decrease in supply) Large decrease in supply- supply shifts left leads to small decrease in demand (demand shifts right) -the decrease in supply dominates the increase in demand
Equilibrium and Shifts of the Supply Curve decrease in supply leads to a movement along the demand curve due to a higher equilibrium price and lower equilibrium quantity
Created by: kthomas96
 

 



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