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Flashcards in 3: Demand & Supply Deck (8)
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1

Money price vs Relative price

Money price: Amount of money needed to buy a good
Relative price: Ratio of a good's money price to the next best alternative's money price (opportunity cost)

2

What is the law of demand?

Everything remaining the same:
Higher the price, smaller the quantity demanded
Lower the price, larger the quantity demanded

3

Substitute vs Complement

Substitute: Good that can be used in place of another good
Complement: Good that can be used in conjunction with another good

4

Normal good vs Inferior good

Normal good: When income increases, demand of the good increases
Inferior good: When income increases, demand of the good decreases

5

What is the law of supply?

Everything remaining the same:
Higher the price, greater the quantity supplied
Lower the price, smaller the quantity supplied

6

Change in supply vs Change in quantity supplied

Change in supply: When price of the good remains the same but one of the other influences on the seller's plans changes (supply curve shifts)
Change in quantity supplied: When price of the good changes and other influences on sellers' plans remain the same (movement along the supply curve)

7

Equilibrium price & quantity

Price at which quantity demanded equals quantity supplied
Quantity bought and sold at the equilibrium price

8

Price adjustments: Surplus & Shortage

Surplus: Quantity supplied exceeds quantity demanded (forces the price down)
Shortage: Quantity demanded exceeds quantity supplied (forces the price up)