Chapter 3 Review Supply & Demand. What is a market: -an institution that brings together buyers and...
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Transcript of Chapter 3 Review Supply & Demand. What is a market: -an institution that brings together buyers and...
Chapter 3 Review
Supply & Demand
What is a market:
• -an institution that brings together buyers and sellers.
Markets:
• -assume many buyers and many sellers of a standardized product.
The law of demand:
• -price and quantity demanded are inversely related.
The demand curve shows the relationship between:
• -price and quantity demanded.
Economists use the term demand to refer to:
• -schedule of various combinations of market prices and amounts demanded.
- The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is
_____.
• direct, inverse
What is the income effect?
• -when the price of a product increases, a consumer is able to buy less of it with a given money income.
A demand curve:
• -indicates the quantity demanded at each price in a series of prices.
The most important variable in determining the quantity demanded/supplied is:
• PRICE
Substitution Effect
• an increase in the price of a product will reduce the amount of it purchased because: consumers will substitute other products for the one whose price has risen
• Eg. Coke → Pepsi
The income and substitution effects account for
• the downward sloping demand curve
Complementary Goods
• goods that are used together with another good
• hot dog buns with hot dogs
Determinants of Demand
• Tastes• Number of buyers• Income- normal v. inferior goods • (Independent goods)• Prices of related goods • Consumer expectations• Substitute goods • Complementary goods
Change in DEMAND versus change in QUANTITY DEMANDED
The law of supply
• producers will offer more of a product at high prices than they will at low prices
The supply curve shows the relationship between
• price and quantity supplied
Determinants of Supply
• Change in resource prices• Change in technology• Change in prices of other goods• Change in producer expectations• Change in the number of suppliers
Price Floor
• Rationale• Impact• result
Price Ceiling
• Rationale• Impact• result