Chapter 3: Demand and Supply

Tastes

Tastes

________ and preferences describe people's opinions about a good.

fundamental relationship

The ________ on the supply side is between the price of the good and the quantity that sellers are willing and able to sell at that price.

Individual preferences

________ determine whether goods are normal or inferior for a particular person.

Demand

The relationship between the price of a good and the quantity of the good that buyers are witting and able to buy at that price.

marginal utility

The law of diminishing ________ also contributes to the law of demand.

positive relationship

The ________ between the price of a good and its quantity supplied is called the law of supply.

substitution effect

The ________ tells us that you will respond to a higher price of a good by decreasing your quantity demanded of that good and substituting instead into goods whose prices have not changed.

Quantity

________ supplied is the amount of a good or service that sellers are willing and able to sell at a given price.

New technological innovations

________ might increase supply or lower production costs, consumers move to new markets, consumers and producers may alter their expectations- all these shifts in demand and supply affect price and quantity and move the market away from equilibrium.

Supply

________ shows us all the prices and all the quantities supplied in the entire table or graph.

Market surplus

________ occurs when the price of a good is above its equilibrium price.

demand curve

When we build a(n) ________, we can describe the behaviour of an individual or the behaviour of all of the consumers in a market.

The law of diminishing marginal utility

is an alternative way to explain the demand for goods and services, as represented by the demand curve.

positive relationship

There are several factors that contribute to the ________ between price and quantity supplied: the scale effect, the substitution effect, and the law of increasing marginal costs.

substitution effect

The law of demand arises from the ________, which describes how you respond to changes in relative prices.

Quantity demanded

The amount of a good that buyers are willing and able to buy at a given price

There are several factors that contribute to the positive relationship between price and quantity supplied

the scale effect, the substitution effect, and the law of increasing marginal costs

New technological innovations might increase supply or lower production costs, consumers move to new markets, consumers and producers may alter their expectations

all these shifts in demand and supply affect price and quantity and move the market away from equilibrium

increase in demand

means that quantity demanded increases at each price.

decrease in demand

means that quantity demanded decreases at each price.

The law of increasing marginal costs

asserts that the costs of production tend to rise as successive units of a good are produced.

market equilibrium

When buyers can obtain all of the good that they are willing and able to buy at a given price and sellers can sell all of the good that they are willing and able to sell at a given price, the market is in equilibrium.

market shortage

occurs when the price of a good is below its equilibrium price.

market surplus

occurs when the price of a good is above its equilibrium price.