Chapter 4 AP Macroeconimcs

Law of Demand

other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases

Law of market forces

When there is a surplus, the price falls; and when there is a shortage, the price rises

Law of Supply

Other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases.

Quantity demanded

the amount that people are willing and able to buy during a specified period at a specified price of any good, service, or resource

Law of diminishing returns

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

Quantity supplied

a good, service, or resource is the amont that people are willing and able to sell during a specified period at a specifed price

Supply

the relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same

Demand

the relatioship between the quantity demanded and the price of a good when all other influences on buying plans remain the same

Supply or Demand Curve

If the quantity supplied decreases, the opposite happens. If the supply curve starts at S2, and shifts leftward to S1, the equilibrium price will increase and the equilibrium quantity will decrease as consumers move along the demand curve to the new higher price and associated lower quantity demanded.

Substitues

a good is another good that can be consumed in its place

Complement

a good is another good that is consumed with it

inferior good

a rise in income decreases the demand for a good

normal good

a rise in income increases the demand for a good

competitive market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Equilibrium price

quantity demanded equals quantity supplied

Equilibrium quantity

the quantity bought and sold at the equilibrium price

Shortage

the amount by which the quantity demanded exceeds the quantity supplied

Surplus

the amount by which the quantity supplied is higher than the quantity demanded

market equilibrium

when quantity demanded equals quantity supplied

Demand Shifters

income, population, price of substitutes, price of complements, expectations, tastes

Supply Shifters

expected future prices, inputs(prices of FoP or other), productivity, substitues and complements, number of suppliers