ECON 003 Flashcards - Chapter 3, Part 1

Flashcards covering key concepts from the first part of Chapter 3 in Principles of Microeconomics, focusing on demand and supply.

What does 'ceteris paribus' mean in economics?

All else being equal; economists examine one change at a time, assuming all other factors are held constant.

What is the law of demand?

There is an inverse relationship between the price of a good and the quantity of the good that consumers are willing to buy, ceteris paribus.

What is a demand schedule?

A table showing the various quantities of a certain good or service that consumers are willing to buy at different possible prices.

What is a demand curve?

A graphic representation of the relationship between price and quantity demanded of a certain good or service.

What is the difference between a change in quantity demanded and a change in demand?

A change in quantity demanded is a movement along a stationary demand curve, while a change in demand is a shift of the entire curve due to a change in a nonprice determinant.

List some nonprice determinants of demand.

Number of buyers, tastes and preferences, income, expectations of future changes in prices, and prices of related goods.

How does an increase in the number of buyers affect the demand curve?

It causes a rightward shift in the market demand curve (an increase in demand).

How does a favorable change in consumer tastes/preferences affect the demand curve?

It causes a rightward shift in the market demand curve (an increase in demand).

What is a normal good?

Any good for which there is a direct relationship between changes in income and its demand curve.

Ex. new cars, steak dinners, vintage wine, cleaning/maid services, TV

What is an inferior good?

Any good for which there is an inverse relationship between changes in income and its demand curve.

Ex. Canned beans, canned meats, used clothes, used cars

How does increased consumer income affect the demand for normal goods?

Causes a rightward shift in market demand curve (an increase in demand).

How does increased consumer income affect the demand for inferior goods?

Causes a leftward shift in market demand curve (a decrease in demand).

How do expectations that the price of a good will be higher in the future affect demand today?

It causes a rightward shift in the market demand curve (an increase in demand) today.

What is a substitute good?

A good that competes with another good for consumer purchases.

Ex. Coca Cola vs Pepsi, Hot Dogs vs. Hamburgers

What is a complementary good?

A good that is jointly consumed with another good.

Ex. Hot dogs and mustard, computers and internet service

How does the price of a substitute good increasing affect demand for the other good?

It causes a rightward shift in the market demand curve (an increase in demand) for the other good.

How does the price of a complementary good increasing affect demand for the other good?

It causes a leftward shift in the market demand curve (a decrease in demand) for the other good.

What is the law of supply?

There is a direct relationship between the price of a good and the quantity of the good that producers are willing to sell, ceteris paribus.

What is a supply schedule?

A table showing the various quantities of a certain good or service that producers are willing to sell at different possible prices.

What is a supply curve?

A graphic representation of the relationship between price and quantity supplied of a certain good or service.

What is the difference between a change in quantity supplied and a change in supply?

A change in quantity supplied is a movement along a stationary supply curve, while a change in supply is a shift of the entire curve due to a change in a nonprice determinant.

List some nonprice determinants of supply.

Number of sellers, technology, weather and climate, input prices, taxes and subsidies, and expectations of producers.

How does an increase in the number of sellers affect the supply curve?

It causes a rightward shift in the market supply curve (an increase in supply).

How does new and more efficient technology affect the supply curve?

It causes a rightward shift in the market supply curve (an increase in supply) because it decreases production costs.

How does a favorable change in climate and weather affect the supply curve?

It causes a rightward shift in the market supply curve (an increase in supply).

How does a decrease in the price of inputs affect the supply curve?

It causes a rightward shift in the market supply curve (an increase in supply).