Econ Exam2

Law of Demand

As price falls quantity rises and vise versa

Demand Schedule

Price and quantity demanded. Always a specific time period

Market Demand

add all individual curves. horizontal summation

Movement along the curve

only occurs when the price changes

Normal goods

Items that reliable and safe. Good things

Inferior goods

Items that are cheap and unreliable. bad things

Substitutes

Goods that take the place of each other

Complements

Goods that go together and do not take the place of each other. PB&J

Law of Supply

If the price of a good goes up so does the quantity supplied

Price ceiling

Max price

Price floor

the minimum price

Subsidies

Government pays to keep supply high. Price decreases and the quantity supplied increases

Equilibrium

Occurs when the demand curve and the supply curve intersect

Surplus

If the quantity supplied exceeds the quantity demanded. To fix lower the price

Shortage

If the quantity demanded exceeds the quantity supplied

Government Setting Prices- Price Ceiling

Price below equilibrium price. Can cause shortages because the demand is still high but suppliers are less willing to make more since it may not cover costs. To fix increase the price.

Government Setting Prices-Price Floor

Price above equilibrium price. Can cause surpluses because demand is lowered because the price is too high and suppliers make more if the price is high