TW Chapter 3 - The Supply and Demand Model

Demand Definition

A relationship between price and quantity demanded

Price Definition

The amount of money or other goods that one must pay in order to obtain a particular good

Quantity Demanded Definition

The quantity of a good that people want to buy at a given price during a specific time period

It goes down

As price rises, what happens to quantity demanded?

Demand Schedule Definition

A tabular presentation of demand showing the price and quantity demanded for a particular good, all else being equal

Law of Demand

The tendency for the quantity demanded of a good in a market to decline as its price rises

A negative relationship

Price and demand have what kind of relationship?

Demand Curve Definition

A graph of demand showing the downward-sloping relationship between price and quantity demanded

Because the two variables have a negative correlation

Why does the demand curve have a negative slope?

Weather conditions, environmental concerns, infrastructure changes, etc

What also affects quantity?

Increase in Demand

Shift Right on Demand Curve =

Decrease in Demand

Shift Left on Demand Curve =

Normal Goods Definition

A good for which demand increases when income rises and decreases when income falls

Inferior Goods Definition

A good for which demand decreases when income rises and increases when income falls

It will increase

If the number of consumers increases, what happens to demand?

Substitute Definition

A good that has many of the same characteristics as, and can be used in place of, another good

Complement Definition

A good that usually is consumed or used together with another good

Movement Along the Curve Definition

When the quantity demanded changes because of a change in the price of goods

Shift In the Curve Definition

When a change in something other than price affects the quantity demanded

Consumers, firms

Demand is the behavior of ______ while supply is the behavior of _______

Supply Definition

A relationship between price and quantity supplied

Quantity Supplied Definition

The quantity of a food that firms are willing to sell at a given price

Supply Schedule Definition

A tabular representation of supply showing the price and quantity supplied of a particular good, all else being equal

Positive relationship

Price and quantity supplied have what kind of relationship?

Law of Supply Definition

the tendency for the quantity supplied of a good in a market to increase as its price rises

Supply Curve Definition

A graph of supply showing the upward-sloping relationship between price and quantity supplied

Shows increased incentive to produce more with increased prices

Why does the supply curve have a positive slope?

New technology, weather, price of inputs in production, the number of firms in the market, expectations of future prices, government taxes, subsidies and regulations

What are some examples of things that can cause the supply curve to shift?

Supply and Demand Model

Supply + Demand =

False, the market determines the price through economic interaction between consumers and firms

True or False : A person determines the price in a market

Preferences of consumers, the number of consumers in the market, consumers’ income, expectations of future prices, price of related goods

What are some examples of things that can cause the demand curve to shift?

Shortage Defintion

A situation in which quantity demanded is greater than quantity supplied

Surplus Definition

A situation where quantity supplied is greater than quantity demanded (price is too high)

an equilibrium price

Both shortages and surpluses can be solved when the price reaches….

Equilibrium Price Definition

The price at which quantity supplied = quantity demanded

Equilibrium Quantity Definition

The quantity traded at the equilibrium price

Market Equilibrium Definition

The situation in which the price is equal to the equilibrium price and the quantity traded equals the equilibrium quantity

A shortage

Too low of a price can cause….

A surplus

Too high of a price can cause….

The equilibrium price or equilibrium quantity

When the curve shifts, so does…