ECON 101 Study Guide - Midterm Guide: Final Good, Shortage, Normal Good
Economics Chapter 3 Reading Notes
Competitive market: a market in which there are many buyers/ sellers of the same good
or service, none of whom can influence the price at which the good or service is sold
No individual’s actions have a noticeable effect on the price at which the good or
service is sold
When a market is competitive, it is well described by the supply and demand model
which has 5 elements: supply curve, demand curve, the set of factors (cause the
demand and supply curve to shift), market equilibrium (includes equilibrium price
and quantity), and the way the market equilibrium changes when the supply curve
or demand curve shifts
The higher the price of a good, the less people want it and vice versa
Demand schedule: a table showing how much of a good or service consumers will want
to buy at different prices
Quantity demanded: is the actual amount of a good or service consumers are willing to
buy at some specific price
Demand Curve: a graphical representation of the demand schedule- shows the
relationship between quantity demanded and price
Demand curve slopes downward- reflects the inverse relationship between the price
and the quantity demanded; demand curves mostly always slope downward
Law of Demand: a higher price for a good or service, other things equal, leads people to
demand a smaller quantity of that good or service
Shift of the Demand Curve: shows the change in the quantity demanded at any given
price; different from movements along the demand curve
Movements along the demand curve: changes in the quantity demanded of a good arising
from a change in that good’s price
Increase in demand: shifting the curve to the right; decrease: to the left
When there is an increase in demand, consumers demand a larger quantity of the
good or service than before
When there is a decrease in demand, consumers demand a smaller quantity of the
good or service than before
Economists believe there are five principal factors that shift the demand curve:
changes in the prices of related goods or services, changes in income, changes in
taste, changes in expectations, and changes in the number of consumers
Changes in the Prices of Related Goods or Services:
Two goods are substitutes if a rise in the price of one good makes consumers
more likely to buy the other good
Substitutes are usually goods that in some way serve a similar function
A rise in the price of the alternative good induces some consumers to purchase the
original good instead of it, shifting demand for the original good to the right
Complements are usually goods that in some sense are consumed together so a
rise in the price of one makes consumers less willing to buy another good
When the price of one good rises, the demand for its complement decreases
shifting the demand curve of the complement to the left
Changes in Income:
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Document Summary
Competitive market: a market in which there are many buyers/ sellers of the same good or service, none of whom can influence the price at which the good or service is sold. No individual"s actions have a noticeable effect on the price at which the good or service is sold. The higher the price of a good, the less people want it and vice versa. Demand schedule: a table showing how much of a good or service consumers will want to buy at different prices. Quantity demanded: is the actual amount of a good or service consumers are willing to buy at some specific price. Demand curve: a graphical representation of the demand schedule- shows the relationship between quantity demanded and price. Demand curve slopes downward- reflects the inverse relationship between the price and the quantity demanded; demand curves mostly always slope downward.
