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Chapter 3 Review Supply & Demand
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What is a market: -an institution that brings together buyers and sellers.
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Markets: -assume many buyers and many sellers of a standardized product.
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The law of demand: -price and quantity demanded are inversely related.
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The demand curve shows the relationship between: -price and quantity demanded.
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Economists use the term demand to refer to: -schedule of various combinations of market prices and amounts demanded.
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- The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. direct, inverse
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What is the income effect? -when the price of a product increases, a consumer is able to buy less of it with a given money income.
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A demand curve: -indicates the quantity demanded at each price in a series of prices.
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The most important variable in determining the quantity demanded/supplied is: PRICE
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Substitution Effect an increase in the price of a product will reduce the amount of it purchased because: consumers will substitute other products for the one whose price has risen Eg. Coke → Pepsi
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The income and substitution effects account for the downward sloping demand curve
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Complementary Goods goods that are used together with another good hot dog buns with hot dogs
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Determinants of Demand Tastes Number of buyers Income- normal v. inferior goods (Independent goods) Prices of related goods Consumer expectations Substitute goods Complementary goods
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Change in DEMAND versus change in QUANTITY DEMANDED
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The law of supply producers will offer more of a product at high prices than they will at low prices
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The supply curve shows the relationship between price and quantity supplied
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Determinants of Supply Change in resource prices Change in technology Change in prices of other goods Change in producer expectations Change in the number of suppliers
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Price Floor Rationale Impact result
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Price Ceiling Rationale Impact result
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