there is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus
A change in quantity demand means a movement
up and down the curve DO TO PRICE
What is demand?
demand represents the choice making behavior of buyers
What is a demand curve?
a curve that shows the quantities of a good or service that people( WE THE CONSUMER) are willing and able to buy at different prices
Why do demand curves have a negative slope?
as the price per unit of a good or service falls buyers can afford to buy more units per period of time
When price changes what happens?
the curve does NOT SHIFT there is a change in quantity demande and a movement along the curve.
what happens when prices decrease?
there is a downward movement along the demand curve--> increase in quantity demand
what happens when price increases?
there is un upward movement along the demand curve--> decreases in quantity demand
Does price have something to do with the shift in the demand curve T/F
What has an effect that can shift the demand curve right or left?
The 5 Nonprice determinants
1. #of buyers
Inferior goods/normal goods
3. taste and preferences
4. Expectations of buyers
5.Price of related goods
#of Buyers Example:Immigration from Mexico increases the demand for Mexican food products in grocery stores.what does it do to the curve
Shifts to the Right
# of buyers Example: A decline in the birthrate reduces the demand for baby clothes.
Shift to the left
Taste and Preferences: For no apparent reason, consumers want Beanie Babies and demand increases.
Shift to the right
Taste and Preferences: After a while, the fad dies and demand declines.
Shifts to the left
Income A. Normal Goods: Consumers’incomes increase, and the demand for steaks increases
Shifts to the right
Income A Normal goods: A decline in income decreases the demand for air travel.
Shift the left
Income Inferior Goods: Consumers’ incomes increase, and the demand for hamburger decreases.
shift to the left
Income: Inferior Goods: A decline in income increases the demand for bus service
shifts to the right
Expectations of buyers: Consumers’expect that gasoline will be in short supply next month and prices will risesharply. Consequently, consumers fill the tanks in their cars this month, andthere is an increase in demand for gasoline
Shifts to the right
Expectations and buyers:Months later consumers expect the price of gasoline to fall soon, and the demand for gasoline decreases.
shifts to the left
Prices of related goods A. Substitute :A reduction in the price of tea decreases the demand for coffee.
shifts to the left
Prices of related goods: An increase in the price of airfares causes higher demand for bus transportation.
shifts to the right
prices of related goods Complementary Goods:
A decline in the price of cellular service increases the demand for cell phones.
shifts to the right
Prices of Related Goods Complementary Goods: A higher price for peanut butter decreases the demand for jelly.
shifts to the left
What is a normal good
•Any good for which there is a direct relationship between changes in income and its demand curve
What does a direct relationship between price andquantity mean?
the two variables move in the same direction
What is aninferior good?
•Any good for which there is an inverse relationship between changes in income and its demand curve
What does an inverse relationship between price &quantity mean?
•It means that the two variables move in opposite directions
What are substitute goods?
•Goods that “compete” with one another for consumer purchases
What are complementary goods?
•Goods that are “jointly consumed” with another good
•Supply represents the choice making behavior of sellers
Whatis thelaw of supply?
•There is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus
Why do supply curves have a positive slope?
•Only at a higher price will it be profitable for sellers to incur the higher opportunity cost associated with supplying a larger quantity
When price changes, what happens?
The curve does not shift and there is a “change in the quantity supplied"
increase in price
leads to an upward movement along the supply curve which leads to an increase in quantity demand
decrease in price
leads to a downward movement along the supply curve and decrease in quantity supplied
A change in price causes a change in the quantity supplied T/F
Change in quantity --> movement up or down --> because of ???
change in supply--> shift of the entire curve left or right -->> because of???
6 nonprice determenants
When a variable other than pricechanges, what happens?
•The whole curve shifts and there is a “change
•Changes in nonprice determinants can produce only a shift in a supply curve and not a movement along the demand curve T/F
A shift in a supply curve is caused by a change in:
•Number of sellers in the market•Technology•Resource prices•Taxes and subsidies•Expectations of producers•Prices of other goods and services the firm could produce
What is a market?
•Any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged
Where is the equilibrium price?
•At the price where the quantity demanded and the quantity supplied are equal
What is the price system?
•A mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices
What causes a change in market equilibrium?
•A change in demand•A change in supply
An increase in demand does what to the equilibrium and quantity supply
increase equilbrium price and increase quantity supply
A decrease in demand does what to the equilbrium and quantity supplied?
decrease equilibrium price and quantity supplied
An increase in supply does what to the equilbrium price and quantity demand?
decrease the equilbrium and increase the quantity demanded
A decrease in supply has what effect on the equilbrium price and quantity demand?
increases the equilbrium price and decreases the quantity demand
What are the two types of pricecontrols?
1.Price ceilings2.Price floors
What is a price ceiling?
•A legally established maximum price a seller can charge
What is the purpose of priceceilings (rent control) on rent? examples.
•So needy people will pay lower rent than the equilibrium rent
What is the result of priceceilings (rent control) on rent?
•A shortage of rental units
Th effects of rent ceiling on quanity demand and what happens?
the quanity demand exceeds the quantity supply which causes a shortage
•A legally established minimum price a seller can be paid
What are examples of pricefloors?
•Minimum wage law•Agricultural price supports
What is the result of a pricefloor (minimum wage) on wages paid to labor?
a surplus of labor
High Minimum wage leads to unemployment T/F
What is market failure?
•A situation in which the price system results in too few or too many resources used in the production of a good or service. This inefficiency may justify government intervention.
What are some market failuresituations?
•Lack of Competition•Externalities•Public Goods•Income Inequality
What happens when competition islacking?
•Market failure results
Who is Adam Smith?
•The father of modern economics who wrote The Wealth of Nations, published in 1776
What is an externality?
•A cost or benefit imposed on people other than the consumers and producers of a good or service (third parties).
What is anegative externality?
•An externality that is detrimental to third parties
What is an example of a negativeexternality?
What is apositive externality?
•An externality that is beneficial to third parties
What is an example of a positiveexternality?
What is the conclusion? about positive externalities
•When externalities are present, market failure gives incorrect price and quantity signals, and resources are misallocated
What is the effect of externalcosts and benefits on resources?
•External costs cause the market to overallocate resources, and external benefits cause the market to underallocate resources
What is a public good?
•A good that, once produced, has two properties: 1.users collectively consume benefits2.no one can be excluded who who does not pay (free rider)
What are examples of publicgoods?
•National defense•Public education•Highways
What is the conclusion? about public goods?
•If public goods are available only in the marketplace, people wait for someone else to pay, and the result is an underproduction or zero production of public goods
What is another example of marketfailure?
•Income inequality •Government transfer programs such as social security, unemployment compensation, food stamps, and minimum wage are examples of programs that redistribute income.
Which of the following is the most likely result of an increase in the minimum wage? A) An increase in the employment of unskilled workers. B) A decrease in the number of workers seeking minimum wage jobs. C) An increase in the demand for unskilled workers. D) A decrease in the employment of unskilled workers.
Price floors are instituted because the government wants to: A) help consumers. B) help producers. C) raise tax revenue. D) prevent imports. E) increase demand.
A price floor that sets the price of a good above market equilibrium will cause: A) a decrease in quantity demanded of the good. B) an increase in quantity supplied of the good. C) a surplus of the good. D) all of these.
D all of these
A price floor would be established in cases where the government believed the market equilibrium price would: A) result in a surplus. B) be too high. C) result in a shortage. D) be too low. E) yield excess profits.
D be too low
If people buy less chewing gum at every price when their incomes fall, then: A) chewing gum is a normal good. B) the demand for chewing gum is positively sloped. C) demand for chewing gum has increased. D) the price of chewing gum has increased. E) there has been a decrease in population that changed demand.
A its a normal good
An increased equilibrium price and a decreased equilibrium quantity results from a
decrease in supply
if goods A and B are complements and the price of goods B rises how will this affect the market equilbrium for good A