Macro: Exam 2

Demand schedule

Shows the quantities of a good consumers are willing and able to purchase at various prices out of a set of all possible prices, over a specified period of time

Quantity goes up

What happens to quantity demanded as price goes down?

Price goes up

What happens to price as quantity demanded decreases?

Law of demand

There will be always be an inverse (indirect) or negative relationship between price and quantity

Quantity demanded

Reflects a move along (slide) a demand curve as the price changes -ceteris paribus

Change in demand

(Shift) movement of the entire curve

Non-price determinants

What causes a change or shift in the demand curve?

Non-price determinants definition

When you make choices about what to buy, you consider other factors in addition to the price

Price is important, but it gets a permanent spot on the vertical axis, so these are shifters

Why will change in price not shift the demand curve?

1. Consumer tastes (preferences)
2. Income
3. Prices of related goods
4. Number of buyers

Non-price determinants (Demand shifters)

Consumer tastes (preferences)

Media/Climate/Home/Age/Gender

Income

Superior/Normal Goods

Prices of related goods

Complementary goods

Buyers

Number of ___ in the market

Expectations

Future based (Make decisions from)

Superior (Normal Goods)

Goods you will buy more of as your income rises (vice versa)

Inferior (Good)

Good you will by less of as income rises (vice versa)

Superior=rightward shift

What will happen to the demand for sailboats (the curve) as income rises (ceteris paribus)?

Inferior=leftward shift

What will happen to the demand for roman noodles (the curve) as income rises (ceteris paribus)?

Complementary goods

If you buy them or use them together; an increase in the price of one good causes a decrease in the demand for the other good

Peanut butter and jelly

Example of complementary good

Quantity Demanded

Change in ___

Demand

Change in ___

Substitute Goods

Am increase in the price of one good causes an increase in the demand for the other good

Coffee vs Tea

Example of substitute

more; increase

If there are ___ buyers in the market will ___ the demand (shift to the right)

leave; decrease

If there are ___ buyers in the market will ___ the demand (shift to the left)

Supply Schedule

Quantities of a good that producers are willing and able to produce at various prices out of a set of all possible prices over a specified period of time

It goes down

What happens to quantity supplied as price goes down?

It goes up

What happens to quantity supplied as price goes up?

Law of supply

There will always be a direct or positive relationship between price and quantity supplied

Quantity supplied

Movement along a supply curve as prices change (ceteris paribus)

Shift in supply

Movement of the entire curve

Rightward; increase

More is supplied at all possible prices

Leftward; decrease

Less is supplied at all possible prices

Price

___ does not shift curve

1. Costs of Inputs
2. Technology
3. Number of producers in the market
4. Prices of related goods
5. Government Polices
6. Expectations

Non-Price Determinants (Supply)

Interaction

How is a price determined?

A price once achieved it will tend to be sustained

How is an equilibrium price determined?

Equilibrium

Both the quantity and supply curve intersect/touch (QD=QS)

Shortages/Surpluses

In equilibrium there are no

Surplus

Quantity supplied exceeds quantity demanded, movement to equilibrium

Shortage

Quantity demanded exceeds quantity supplied, movement to equilibrium

Increase Demand

-Rightward shift
-Shift caused by non-price determinants (ex: beef, superior)

Decrease Demand

-Leftward shift
-Shift caused by non-price determinants (ex: beef, superior)

Increase Supply

-Rightward shift
-Price falls
Ex: Tech/Producers increase

Decrease Supply

-Leftward shift
-Price rise
Ex: Tax increase

Price Ceiling

Legal price set below equilibrium

Political reasons/legal bite

Why are there price ceilings and floors?

1. Shortages
2. Black markets
3. Distortion of market (signals/misallocation of resources)

Impacts of price ceilings

Price Floors (Support)

Legal price set above equilibrium

Minimum Wage

Example of price floors

Rent Control

Example of price ceiling

1. Surplus
2. Surplus Disposal (Control required)
3. Distortion of Market (signals/misallocation of resources)

Impacts of price floors

Disposal

Government buys up the surplus