# Economics for Managers - Chapter 2

 Demand The functional relationship between the price of a good or service and the quantity demanded by consumers in a given period, all else held constant. Functional relationship A relationship between variables, usually expressed in an equation using symbols for the variables, where the value of one variable, the independent variable, determines the value of the other, dependent varible. Nonprice factors Influencing Demand 1. Tastes and preferences2. Income3. Prices of related goods4. Future expectations5. Number of consumers Normal good A good for which consumers will have a greater demand as their incomes increase, all else held constant, and a smaller demand if their incomes decrease, other factors held constant. Inferior good A  good for which consumers will have a smaller demand as their incomes increase, all else held constant, and a greater demand if their incomes decrease, other factors held constant. Substitute goods Two goods, X and Y, are substitutes if an increase in the price of good Y causes consumers to increase their demand for good X or if a decrease in the price of good Y causes consumers to decrease their demand of good X. Complementary goods Two goods, X and Y, are complementary if an increase in the price of good Y causes consumers to decrease their demand for good X or if a decrease in the price of good Y causes consumers to increase their demand of good X. Indivdual demand function The function that shows, in symbolic or mathematical terms, the variables that influence the quantity demanded of a particular product by an individual consumer. Markert demand function The function that shows, in symbolic or mathematical terms, the variables that influence the quantity demanded of a particular product by all consumers in the martket and that is thus affected by the number of consumers in the market. Demand curve The graphical relationship between the price of a good and the quantity consumers demand, with all other factors influencing demand held constant. Demand shifters The variables in a demand function that are held constant when defining a given demand curved, but that would shift the demand curve if their values changed. Negative (inverse) relationship A relationship between two variables, graphed as a downward sloping line, where an increase causes a decrease in the value of the other variable. Change in quantity demanded The change in quantity consumers purchase when the price of the good changes, all other factors held constant, pictured as a movement along a given demand curve. Change in demand The change in quantity purchased when one or more of the demand shifters change, pictured as a shift of the entire demand curve. Horizontal summation of individual demand curves The process of deriving a market demand curve by adding the quantity demanded by each individual at every price to determine the market demand at every price. Linear demand function A mathematical demand function graphed as a straight-line demand curve in whci all the terms are either added or subtracted and no terms have exponents other than 1. Suppy The functional relationship between the price of a good or service and the quantity supplied by producers in a given time period, all else held constant. Nonprice Factors Influencing Suppy 1. State of technology2. Input prices3. Prices of goods related in production4. Future expectations5. Number of producers Individual supply function The function that shows, in symbolic or mathematical terms, the variables that influence the quantity supplied of a particular product by an individual producer. Market suppy function The function that shows, in symbolic or mathematical terms, the variables that influence the quantity supplied of a particular product by al producers in the market and that is thus affected by the number of producers in the market. Supply curve The graphical relationship between the price of a good and the quantity supplied, with all other factors influencing supply held constant. Supply shifters The other variables in a supply function that are held constant when defining a given supply curve, but that would cuase that supply curve to shift if their values changed. Positive (direct) relationship A relationship between two variables graphed as an upward sloping line, where an increase in the value of one variable causes an increase in the value of the other variable. Linear suppy function A mathematical supply function, which graphs as a straight-line supply curve, in which all terms are either added or subtracted and no terms have exponenets other than 1. Change inquantity supplied The change in amount of good supplied when the price of the good changes, all other factors held constant, pictured as movement along a given supply curve. Change in supply The change in the amount of a good supplied when one or more of the supply shifters change, pictured as a shift of the entire supply curve. Equilibrium price The price that actually exists in the market or toward which the market is moving where the quantity demanded by consumers quayls the quantity supplied by producers. Eqilibrium quantity (Qe) The quantity of a good, determined by the equilibrium price, where the amount of output that consumers demand is equal to the amount producers want to supply. Market equilibrium Market equilibrium occurs at that price where the quantity demanded by consumers equals the quantity supplied by producers. Authorjmbesset ID169916 Card SetEconomics for Managers - Chapter 2 DescriptionChapter 2 Updated2012-09-10T01:34:47Z Show Answers