Micro Chap. 3

The recent explosion of computer technology has caused this.

A factor (other than) that changes demand.

A factor that changes in supply

An increase in this factor will shift demand of the substitute (margarine) to the right.

One explanation for increase in labor supply

One reason why we have an upward-sloping supply curve.

The price and quantity at which there is no surplus or shortage.

Occurs when the quantity supplied is greater than the quantity demanded.

Occurs when the price of a product falls.

There exists a definite relationship between the market price of a good and the quantity demanded of that good, other things held constant. This relationship between price and quantity bought is called the demand schedule, or the demand curve.

Law of downward-sloping demand: When the price of a commodity is raised (and other things are held constant), buyers tend to buy less of the commodity. Similarly, when the price is lowered…

First is the substitution effect, which occurs because a good becomes relatively more expensive when its price rises. When the price of good

A higher price generally also reduces quantity demanded through the income effect. This comes into play because when a price goes up, I find myself somewhat poorer than I was before. If gasoline prices double, I have in effect less real income, so I will naturally curb my consumption of gasoline and other goods.

When there are changes in factors other than a good’s own price which affect the quantity purchased, we call these changes shifts in demand. Demand increases (or decreases) when the quantity demanded at each price increases (or decreases).

Factors affecting the demand curve: 1. Average income 2. Population 3. Prices of related goods 4. Tastes Having a new car becomes a status symbol. 5. Special influences Example for automobiles: 1.As incomes rise, people increase car purchases. 2.A growth in population increases car purchases. 3.Lower gasoline prices raise the demand for cars. 4.Having a new car becomes a status symbol. 5.Special influences include availability of alternative forms of transportation, safety of automobiles, expectations of future price increases, etc

The supply schedule (or supply curve) for a commodity shows the relationship between its market price and the amount of that commodity that producers are willing to produce and sell, other things held constant.

When changes in factors other than a good’s own price affect the quantity supplied, we call these changes shifts in supply. Supply increases (or decreases) when the amount supplied increases (or decreases) at each market price

Factors affecting the supply curve and example for automobiles: 1. Technology; Computerized manufacturing lowers production costs and increases supply. 2. Input prices; A reduction in the wage paid to autoworkers lowers production costs and increases supply. 3. Prices of related goods; If truck prices fall, the supply of cars rises. 4. Government policy; Removing quotas and tariffs on imported automobiles increases total automobile supply. 5. Special influences; Internet shopping and auctions allow consumers to compare the prices of different dealers more easily and drives high-cost sellers out of business.

A market equilibrium comes at the price at which quantity demanded equals quantity supplied. At that equilibrium, there is no tendency for the price to rise or fall. The equilibrium price is also called the market-clearing price. This denotes that all supply and demand orders are filled, the books are “cleared” of orders, and demanders and suppliers are satisfied.

The equilibrium price and quantity come where the amount willingly supplied equals the amount willingly demanded. In a competitive market, this equilibrium is found at the intersection of the supply and demand curves. There are no shortages or surpluses at the equilibrium price.

When the elements underlying demand or supply change, this leads to shifts in demand or supply and to changes in the market equilibrium of price and quantity.