Ch 4 - Demand and Supply: The Basics

Income effect

when prices are low, people are easily able to afford it since their budget would allow it.

Subsidies

are the opposite of taxes and help reduce price per unit.

entire curve

Changes in demand are when the ________ would shift upwards or downwards.

inverse impact

The cost of production (land, labor, capital) has a(n) ________ on the supply.

Disequilibrium

This occurs when there is a shortage or surplus in the market.

surplus

would only exist when the quantity supplied is greater than the quantity demanded.

Quantity Supplied

has a direct relationship with changes in the price of a particular good.

Substitution effect

When products price increase, they tend to increase in relative to other products.

equilibrium price

When supply is constant and only demand increases, ________ and quantity increases.

Demand

tends to decline (shift downwards) for inferior goods with an increase in consumer income.

Shift

in supply is due to the determinants of supply.

The law of supply

states that when prices increase, the supply increases as well direct relation

Taxes

are added up to the unit cost of production, thus making it more expensive.

Change in the quantity demanded

only occurs due to change in price movement along the curve.

Goods

are usually categorized into 2 types, inferior and normal.

Consumer expectation

pays a major role in the determination of the price.

Determinants of supply

are the factors that influence the supplier to offer more or fewer goods at the same price.

supply curve

Since price has a different impact on both buyers and sellers, the ________ is different than a demand curve.

equilibrium price

When supply is constant and only demand decreases, ________ and quantity decreases.

Demand

for a product is the quantity the customers are willing and able to pay for each and every price.

equilibrium price

When demand is constant and only supply increases, ________ and quantity decreases.

equilibrium price

When demand is constant and only supply decreases, ________ and quantity increases.

Income effect

when prices are low, people are easily able to afford it since their budget would allow it

Substitution effect

when products price increase, they tend to increase in relative to other products

Diminishing marginal utility

As more units of a product are consumed, the satisfaction/utility it provides tends to decline

Quantity Demanded

Has an inverse relationship with changes in the price of a particular good

Determinants of Demand

the factors that cause consumers to buy more or less at the same price; these are substitutes, preferences, population, income, complements, and expectations

Quantity Supplied

has a direct relationship with changes in the price of a particular good

The Equilibrium Price

price at which quantity supplied equals quantity demanded

Disequilibrium

This occurs when there is a shortage or surplus in the market

Double-shift rule

This rule states that when there is a simultaneous shift in both demand and supply, either price or quantity would stay indeterminate