BE313 2

• Law of Demand


  The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good
• Demand


  Refers to how much (quantity) of a product or service is desired by buyers
• Demand Price


  The price that people are willing to pay for goods and services when a particular amount or quantity is available
• Quantity Demanded


  The total amount of goods or services demanded at any given point in time
• Changes in the price of a product

  Affect the quantity demanded per period
• Changes in any other factors, such as income or preferences

  Affect demand
• Income Effect


  Economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same
• Income Effect


  • Cellphones, Cars, Etc.
• Substitution Effect


  Economic rule stating that if two items satisfy the same need and the price of one rises, people will buy the other
• Substitution Effect


  • Chicken vs. Red meat, Tea vs. Coffee
• Five Determinants of the Demand

  • Income
  • Tastes and Preferences
  • Price of related goods
  • Future Expectations
  • Number of Buyers
• Normal Good


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


  • movie tickets, restaurant meals, telephone calls, and shirts
• Inferior Good


  An increase in income will cause a fall in demand
• Inferior Goods


  • Supermarket own brand' goods, Tinned meat / spam, corned beef, Instant coffee, Bus travel
• Substitute Good


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


  • telephone calls, less costly for of communication, such as writing letters or sending emails (text)
• Perfect Substitute


  Identical products (Japan cars and US cars)
• Complementary Good


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


  • cars and gasoline, cameras and film
• Demand Schedule


  A table showing how much of a given product a household would be willing to buy at different prices
• Demand Curve


  A graph illustrating how much of a given product a household would be willing to buy at different prices
• Law of Supply


  A fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied
• Supply


  The total amount of a specific good or service that is available to consumers
• Supply Price


  The lowest price at which a given amount of commodities will be offered under given conditions
• Quantity Supplied


  The amount of the good businesses provide at a specific price
• Supply


  Refers to the entire relationship between prices and the quantity of this product supplied at each of these prices
• Quantity Supplied


  Refers to one particular point on the supply curve (not the entire curve)
• Supply Schedule


  A table showing how much of a product firms will sell at different prices
• Supply Curve


  A graph illustrating how of a product a firm will sell at different prices
• Five Determinants of Supply

  • Resource Price
  • Technology
  • Price of Other Goods
  • Seller's Expectations
  • Number of Sellers
• Market


  The institution through which buyers and sellers interact and engage in exchange
• Equilibrium


  A state where economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change
• Equilibrium Price


  The price that exists when a market is in equilibrium
• Equilibrium Quantity


  The quantity exchanged between buyers and sellers when a market is in equilibrium
• Market Surplus


  Occurs when there is excess supply- that is quantity supplied is greater than quantity demanded
• Market Shortage


  Occurs when there is excess demand- that is quantity demanded is greater than quantity supplied