macro chapter 1

what is economics?

economics is the study of how humans make decisions in the face of scarcity

demand

the amount of some good or service consumers are willing and able to purchase at each price

price

what a buyer pays for a unit of the specific good or service

quantity demanded

the total number of units of a good or service consumers are willing to purchase at a given price

law of demand

if price goes up then quantity demanded goes down. the opposite is also true.

demand schedule

a table that shows a range of prices for a certain good or service and the quantity demanded at each price

demand curve

a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis

supply

the amount of some good or service a producer is willing to supply at each price

quantity supplied

the total number of units of a good or service producers are willing to sell at a given price

law of supply

if price goes up then quantity supplied goes up. the opposite is true as well.

supply schedule

a table that shows the quantity supplied at a range of different prices

supply curve

a graphic illustration of the relationship between price, shown on the vertical axis, and quantity, shown on the horizontal axis

equilibrium

the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change

quantity demanded = quantity supplied

equilibrium price

the price where quantity demanded is equal to quantity supplied

equilibrium quantity

the quantity at which quantity demanded and quantity supplied are equal for a certain price level

surplus

at the existing price, quantity supplied exceeds the quantity demanded

shortage

at the existing price, quantity demanded exceeds the quantity supplied

ceteris paribus

latin for “other things being equal”

increased demand

quantity demanded is higher so demand curve shifts to the right

decreased demand

quantity demanded is lower so the demand curve shifts to the left

factors that shifts demand

income, changing tastes, changes in composition of population, price of substitute or complement changes, changes in expectations about the future

normal good

a product whose demand rises when income rises and vice versa

inferior good

a product whose demand falls when income rises and vice versa

substitute

a good or service that we can use in place of another good or service

complements

goods or services that are often used together so that consumption of one good tends to enhance consumption of another

decreased supply

quantity supplied is lower so the supply curve shifts to the left

increased supply

quantity supplied is higher so the supply curve shifts to the right

inputs/factors of production

the combination of labor and machinery that is used to produce goods and services

factors that shift supply

natural conditions, input prices, technology, government policies

movements vs shifts

a shift in one curve never causes a shift in the other curves, but instead causes a movement along the other curve