econ chapter 2 review

the relationship between a products price and quantity demanded

the relationship between a products price and quantity supplied

price and quantity demanded are inversely related. quantity demanded varies inversely with the price (higher price = fewer purchases, lower price = more purchases)

a direct relationship between price and quantity supplied (price increases = quantity supplied increases, price decreases = quantity supplied decreases)

the curve runs downward (top left to bottom right)

curve runs upward (bottom left to top right)

1. income 2. number of buyers/change in population 3. price of substitute goods/other products 4. consumer expectations 5. consumer preferences (trends)

normal products, an increase causes a shift to the right. Inferior products (no name products), an increase in cases of a shift to the left

increase causes a shift right, decrease causes a shift left

for substitute goods, a rise in the other products causes a rightward demand shift. Example: Heinz vs. French’s ketchup · For complimentary goods, a rise in the other products' price causes a leftward demand shift. Example: ketchup and mustard

if consumers are expecting a rise in the price of a good/service in the future, they may choose to purchase it immediately, increasing demand

can increase or decrease the demand for a good or service. Example: fashion trends

1. number of producers 2. resource prices 3. state of technology 4. prices of related products 5. changes in nature 6. producer expectations

an increase causes a rightward supply shift ex. electric cars

an increase causes a leftward supply shift ex. lithium for electric cars

an improvement causes a rightward supply shift ex. ford plant or more tehnology

an increase causes a leftward supply shift ex. increase in electric cars means a decrease in other cars

an improvement causes a rightward supply shift ex. avocado supply in Mexico, droughts and bad rains lead to decreased supply

Expecting lower prices in the future causes an immediate rightward supply shift. Example: housing market, builders will build more now if they believe prices will decrease in the future

price related factors (changes in quantity supplied)

non-price related factors (change in supply)

pushes up both equilibrium price and quantity

pushes down both equilibrium price and quantity

pushes equilibrium price down and equilibrium quantity up

pushes equilibrium price up and equilibrium quantity down

raise equilibrium quantity but the price depends on the shift

If demand shifts rightward more than supply, then price raises

If demand shifts leftward more than supply, then the price falls

supply raises equilibrium price but quantity depends on the shift

If supply shifts leftward more than demand shifts rightward, then quantity falls

If demand shifts rightward more than supply shifts leftward, then quantity rises

excess supply, so price is pushed down

excess demand, so price is pushed up

overall satisfaction that a consumer derives from the consumption of particular goods and services. the sum of the marginal utilities of all such individual items

a measure of the extra satisfaction that a consumer achieves from consuming one more unit of product

As total utility (consumption) increases, the marginal utility derived from each additional unit decreases