Section 2 Vocabulary

Blanc. 24-25.

Demand

Demand

Schedule of the different quantities demanded that consumers are willing and able to buy at different price levels.

Quantity Demanded

Number of units the consumers are willing and able to buy at a specific price.

Law of Demand

As price increases, quantity demanded decreases; As price decreases, quantity demanded increases.

Causes of Shifts in the Demand Curve

1. Change in consumer tastes

2. Change in the price of related goods (substitute and complementary goods)

3. Change in consumer income (normal vs inferior goods)

4. Change in the number of buyers

5. Change in consumer expectations

Results of Shifts in Demand

Increase in demand shifts the demand curve to the right, which causes equilibrium prices and equilibrium quantity to increase.

A decrease in demand shifts the demand curve to the left, which casues equilibrium prices and equilibrium quantity to decrease.

Normal goods

Good that you buy more of as your income increases and decreases.

Inferior goods

Good that you buy less of as your income increases and decreases.

Supply

Schedule of the different quantities supplied that producers are willing and able to sell at different price levels.

Quantity Supplied

The number of units the producers are willing and able to sell at a specific price.

Law of Supply

As price increases, quantity supplied increases; As price decreases, quantity supplied decreases.

Causes of Shifts in the Supply Curve

1. Changes in the cost of inputs

2. Changes in the price of related goods (substitute and complementary)

3. Changes in producer expectations

4. Changes in the number of producers

5. Changes in Technology

Results of Shifts in Supply

An increase in supply shifts the supply curve to the right, which causes equilibrium prices to decrease and equilibrium quantity to increase.

A decrease in supply shifts the supply curve to the left, which causes equilibrium prices to increase and equilibrium quantity to decrease.

Equilibrium

Price level where QS=QD

Shortage

Caused when price level is too low, making quantity supplied less than quantity demanded.

Surplus

Caused when price level is too high, making quantity supplied greater than quantity demanded.

Price Ceiling

Legal maximum set on a price by an artificial source. To be effect, the price must be set below equilibrium. Effects of these are shortages, rationing, black markets, and low product quality.

Price Floor

Legal minimum set on a price by an artificial source. To be effective, the price must be set above equilibrium. Effects of a price floor or surpluses, wasted resources, the government purchasing the excess and low product quality.