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Law of Demand
Quantity demanded rises as price falls, other things constant.
Quantity demanded falls as price rises, other things constant.
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Demand Curve
the graphic representation of the relationship between price and quantity demanded
(price and demand are inversely related)
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Demand
refers to a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant (the entire curve)
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Quantity Demanded
refers to a specific amount that will be demanded per unit of time at a specific price, other things constant (a single point on the curve)
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movement along a demand curve
the graphical representation of the effect of a change in price on the quantity demanded
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shift in demand
the graphical representation of the effect of anything other than price on demand
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Shift factors of demand
- 1.) Society's income
- 2.) The prices of other goods
- 3.) Tastes
- 4.) Expectations
- 5.) Taxes on and subsidies to consumers
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market demand curve
- the horizontal sum of all individual demand curves
- aka total demand curve
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For market, the law of demand is based on two phenomena:
- 1.) At lower prices, existing demanders buy more
- 2.) At lower prices, new demanders (some all-or-nothing) enter the market
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Law of supply states
Quantity supplied rises as price rises, other things constant.
Quantity supplied falls as price falls, other things constant.
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Supply Curve
the graphical representation of the relationship between price and quantity supplied
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Supply
a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant
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Quantity supplied
a specific amount that will be supplied at a specific price
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Movement along a supply curve
the graphical representation of the effect of a change in price on the quantity supplied
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Shift in supply
the graphical represenation of the effect of a change in a factor other than price on supply
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Shift factors of supply
- 1.) Price of inputs
- 2.) Technology
- 3.) Expecations
- 4.) Taxes and Subsidies
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Market supply curve
the horizontal sum of all individual supply curves
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equilibrium
a concept in whcih opposing dynamic forces cancel each other out
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Equilibrium Quantity
amount bought and sold at equilibrium price
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Equilibrium price
the price toward which the invisible hand drives the market
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Excess supply
(a surplus) quantity supplied is greater than quantity demanded
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Excess Demand
(a shortage) quantity demanded is greater than quantity supplied
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fallacy of compositiion
the false assumption that what is true for a part will also be true for the whole
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