chp 3

• Economic systems


  • Subsistence
  • Capitalism
  • Socialism
  • Mix Economy
  • Communism
  • Islamic
• Market structure


  • Perfect competition
  • Imperfect competition – Monopoly
  • Monopolistic
  • Oligopoly

  
• Demand curve


  Graph illustrating how much of a given product a household would be willing to buy at different prices

  
• Law of demand


  There is a negative, or inverse, relationship between price and the quantity of a good demanded
• Change in Qd


  Change in quantity demanded
• Shift in DD


  Change in demand
• Factors influencing shift in DD

  Income, preferences, prices of other goods or services
• Supply curve


  Graph illustrating how much of a product a firm will supply at different prices

  
• Law of supply


  There is a positive relationship between price and quantity of a good supplied
• Change in Qs


  Change in quantity supplied
• Shift in SS


  Change in supply
• Factors influencing shift in SS


  Costs, input prices, technology, prices of related goods and services
• Market equilibrium


  Condition where quantity supplied and quantity demanded are equal
• Shift in equilibrium point


  Change in equilibrium price and quantity
• Firm


  Organization that transforms resources (inputs) into products (outputs)
• Entrepreneur


  Person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business
• Households


  Consuming units in an economy
• Circular flow of economic activity

  Connections between firms and households in input and output markets

  
• Output markets


  Markets in which goods and services are exchanged

  
• Input markets


  Markets in which resources—labor, capital, and land—used to produce products, are exchanged

  
• Input markets


  • Labor market
  • Capital market
  • Land market

  
• Determinants of household demand

  • Price of the product
  • Income available
  • Household's accumulated wealth
  • Prices of related products
  • Household's tastes and preferences
  • Household's expectations about future income, wealth, and prices
• Quantity demanded


  Amount (number of units) of a product that a household would buy in a given time period if it could buy all it wanted at the current market price
• Demand schedule


  Table showing how much of a given product a household would be willing to buy at different prices
• Income


  Sum of all households wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time
• Wealth


  Total value of what a household owns minus what it owes
• Normal goods


  Goods for which demand goes up when income is higher and for which demand goes down when income is lower
• Inferior goods


  Goods for which demand falls when income rises
• Substitutes


  Goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up
• Complements


  Goods that "go together"; a decrease in the price of one results in an increase in demand for the other, and vice versa
• Change in price of a good or service


  Change in quantity demanded (movement along the curve)
• Change in income, preferences, or prices of other goods or services


  Change in demand (shift of curve)
• Higher income


  Decreases demand for inferior goods, increases demand for normal goods
• Price of hamburger rises

  Demand for complement good (ketchup) shifts left, demand for substitute good (chicken) shifts right, quantity of hamburger demanded falls
• Market demand


  Sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service
• Supply schedule


  Table showing how much of a product firms will supply at different prices
• Quantity supplied


  Number of units of a product that a firm would be willing and able to offer for sale at a particular price during a given time period
• Determinants of supply


  • Price of the good or service
  • Cost of producing the good (input prices, technologies)
  • Prices of related products
• Change in price of a good or service


  Change in quantity supplied (movement along the curve)
• Change in costs, input prices, technology, or prices of related goods and services


  Change in supply (shift of curve)