Economics Chapter 3 Flashcards

Questions and Answers

What is the law of demand?

The relationship between consumer income and demand.

The relationship between price and quantity supplied.

The inverse relationship between price and quantity demanded, ceteris paribus. (correct)

The effect of taxes on consumer demand.

What are the non-price determinants of demand?

Consumer's tastes and preferences, consumer's information, consumer's income, normal goods, inferior goods, number of consumers in the market, consumer's expectations of future prices, prices of related goods, substitute goods, complementary goods.

What is the difference between movement along the demand curve and shift in demand?

Movement along the demand curve is caused by a change in price, while a shift in demand is caused by a change in a non-price determinant.

What is the law of supply?

The tendency for the quantity supplied of a good in a market to increase as its price rises. Signup and view all the answers

What are the non-price determinants of supply?

Technology, weather conditions, the price of inputs used in production, the number of sellers in the market, expectations of future prices, government taxes, subsidies, regulations. Signup and view all the answers

What is the difference between movement along the supply curve and shift in supply?

Movement along the supply curve occurs with a change in quantity supplied due to price change, while a shift in supply occurs with any change other than price. Signup and view all the answers

What is the equilibrium price?

The price at which the quantity that sellers are willing to sell equals the quantity that consumers are willing to purchase. Signup and view all the answers

What are the effects of a change in demand?

An increase in demand shifts the demand curve to the right, resulting in a higher equilibrium price and quantity; a decrease shifts it to the left, leading to a lower equilibrium price and quantity. Signup and view all the answers

What are the effects of a change in supply?

An increase in supply shifts the supply curve to the right, resulting in a lower equilibrium price and higher equilibrium quantity; a decrease shifts it to the left, raising equilibrium price and lowering equilibrium quantity. Signup and view all the answers

What is a shortage (excess demand)?

A situation in which the quantity demanded is greater than the quantity supplied, occurring when the price is below the equilibrium price. Signup and view all the answers

What is a surplus (excess supply)?

A situation in which the quantity supplied is greater than the quantity demanded, occurring when the current price is above the equilibrium price. Signup and view all the answers

What is the equilibrium quantity?

The quantity traded at the equilibrium price. Signup and view all the answers

Study Notes

Law of Demand

Describes an inverse relationship between price and quantity demanded when other factors remain constant (ceteris paribus).

Non-Price Determinants of Demand

Factors affecting demand beyond price include:
- Consumer's tastes and preferences
- Availability and quality of consumer information
- Changes in consumer income impacting normal and inferior goods
- Number of consumers in the market
- Expectations regarding future prices
- Prices of related goods, including substitutes and complementary goods

Movement Along vs Shift in Demand

Movement along the demand curve occurs due to price changes.
A shift in the demand curve is triggered by changes in non-price determinants, moving the curve right (increase) or left (decrease).

Law of Supply

Indicates that as the price of a good increases, the quantity supplied in the market tends to increase as well.

Non-Price Determinants of Supply

Influences on supply that do not involve price include:
- Technological advancements
- Weather and environmental conditions
- Changes in input prices for production
- Number of sellers in the market
- Expectations about future prices
- Government regulations, taxes, and subsidies

Movement Along vs Shift in Supply

Movement along the supply curve reflects changes in quantity supplied caused by price fluctuations.
A shift in the supply curve is influenced by factors other than price, affecting supply position.

Equilibrium Price

Defined as the price where quantity supplied equals quantity demanded, achieving market balance.

Effects of a Change in Demand

An increase in demand shifts the demand curve rightward, resulting in higher equilibrium price and quantity.
A decrease in demand shifts the curve leftward, leading to a lower equilibrium price and quantity.

Effects of a Change in Supply

An increase in supply shifts the supply curve to the right, causing lower equilibrium price but higher equilibrium quantity.
A decrease in supply results in a leftward shift, increasing the equilibrium price while decreasing equilibrium quantity.

Shortage (Excess Demand)

Occurs when quantity demanded exceeds quantity supplied, typically when market price is set below equilibrium price.

Surplus (Excess Supply)

Arises when quantity supplied exceeds quantity demanded, usually seen when market price is above equilibrium price.

Equilibrium Quantity

The volume of goods traded at the established equilibrium price, reflecting a balance between supply and demand.

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Description

Dive deep into the concepts of demand with these flashcards from Chapter 3. Explore key terms such as the law of demand and non-price determinants that influence consumer behavior. Perfect for grasping essential economic principles.