MAN, ECON CHAPT 2.
- normal good is a good that experiences an increase in its demand due to a rise in consumers'
income.
When people have less money, they tend to buy these kinds of products. But when their incomes
rise, they often give these up for more expensive items. Coffee is another good example. A
McDonald's coffee may be an inferior good compared to a Starbucks coffee.
SUBSTITUTE- Increase in Price of one good, Increase Demand of the other good; Decrease in
Price of one substitute decreases the demand of the other substitute.
Complement- Increase in Price of one good, Increase Demand of the other good and vice versa.
Choke price is an economic term used to describe the lowest price at which the quantity
demanded of a good is equal to zero.
Substituting the values from Demand to Inverse function= Transposition
Changes in factors like average income and preferences can cause an entire demand curve to
shift right or left. This causes a higher or lower quantity to be demanded at a given price.
Inferior goods are associated with a negative income elasticity, while normal goods are related to
a positive income elasticity.
A market is in equilibrium if at the market price the quantity demanded is equal to the
quantity supplied. The price at which the quantity demanded is equal to the quantity supplied is
called the equilibrium price or market clearing price
CONSUMER SURPLUS= The amount a consumer is willing to pay for something, over what is
actually paid. A high-level consumer surplus throughout the economy may indicate higher
consumer spending.
Tax cuts are reductions to the amount of taxpayers' money that goes toward government revenue.
SHORTAGE Causes prices to increase. CHANGE IN DEMAND- When demand increases and
supply is constant, equilibrium price and quantity both rise. When demand decreases and supply
is constant, equilibrium price and quantity both falls.
CHANGE IN SUPPLY- When supply
increases and demand is constant, equilibrium price falls and equilibrium quantity rises. When
supply decreases and demand is constant, equilibrium price rises and equilibrium quantity falls.
A shortage, in economic terms, is a condition where the quantity demanded is greater than the
quantity supplied at the market price.
Substitute in Production- An increase in the price of one substitute good causes a decrease in the
supply of the other. A decrease in the price of one substitute good causes an increase in the supply
of the other.
If sellers expect a higher price, then supply decreases. If sellers expect a lower price, then supply
increases.
Quantity demanded describes the total amount of goods or services demanded at any given point
in time, depending on the price being charged for them in the marketplace. Change in demand, on
the other hand, focuses on all determinants of demand other than price changes.
EXCESS SUPPLY = SURPLUS = Lower the price in order to meet the equilibrium
EXCESS DEMAND=SHORTAGE= Higher the price to meet the equilibrium.
PRICE CEILING AFFECTS PRODUCERS’ SURPLUS. & PRODUCT SHORTAGE
CHANGE IN QUANTITY DEMAND VS CHANGE IN DEMAND=
Change in quantity demand is a movement along the fix demand and variables taking role in this
is the quantity demanded and the price.
Change in Demand- is a shift of demand curves cause by the 6 determinants.
A movement along the demand curve to the right entails also an increase in supply of goods.
Higher Input Cost decreases SUPPLY. Subsidy is equivalent to a decrease in the firms cost and
therefore increases supply. Taxes HIGHER the cost giving a decrease in supply.
A firm’s supply curve is on an upward slope because -The production costs of additional units of output will
rise beyond a point.
When demand is increasing and equilibrium price also increase, the reason for that is because the OLD
EQUILIBRIUM was decreasing
If there is a shortage, Prices go up and quantity goes up.