Questions and Answers
What is the law of 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?
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What are the non-price determinants of supply?
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What is the difference between movement along the supply curve and shift in supply?
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What is the equilibrium price?
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What are the effects of a change in demand?
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What are the effects of a change in supply?
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What is a shortage (excess demand)?
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What is a surplus (excess supply)?
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What is the equilibrium quantity?
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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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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.