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Chapter 12 Terms Aggregate Demand and Aggregate Supply Flashcards

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❶When the number of sellers is high in a certain market, the quantity of product or service supplied to that market will be high and vice versa. Glossary Glossary of economics.




Companies which manufacture related products, such as detergents, will shift their production to a particular product if that product is manufactured in large quantities. It increases the price, and there will be a reduction in supply. An example is a firm that produces soccer balls and basketballs, when the price of soccer balls increases the firm will produce more soccer balls and less of basket balls, this means that the supply of basketballs will reduce.

High taxes reduce profits because the suppliers will have to pay huge bills to cater for their production. Subsidies, on the other hand, reduces the cost of production, and the suppliers can gain profits by selling the product or service.

An increase in subsidies will increase supply and a decrease in subsidies will decrease supply in the same manner. Entrepreneur, independent investor, instructor and a visionary of my team here. I've been playing with stocks and sharing my knowledge to the world.

The stock market is cool, and I love it! Save my name, email, and website in this browser for the next time I comment. So what are the determinants of supply? Price of a Product or Service. A schedule or curve showing the total quantity of goods and services supplied produced at different price levels.

An aggregate supply curve for which real output, but not the price level, changes when the aggregate demand curves shifts; a horizontal aggregate supply curve that implies an inflexible price level. An aggregate supply curve relevant to a time period in which input prices particularly nominal wages do not change in response to changes in the price level.

The aggregate supply curve associated with a time period in which input prices especially nominal wages are fully responsive to changes in the price level. Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.

A measure of average output or real output per unit of input. For example, the productivity of labor is determined by dividing real output by hours of work. The gross domestic product at which the total quantity of final goods and services purchased aggregate expenditures is equal to the total quantity of final goods and services produced the real domestic output ; the real domestic output at which the aggregate demand curve intersects the aggregate supply curve.

The reluctance of firms to cut prices during recessions that they think will be short lived because of the costs of altering and communicating their price reductions; named after the cost associated with printing new menus at restaurants.

Comparative statics of such a shift traces the effects from the initial equilibrium to the new equilibrium. When consumers increase the quantity demanded at a given price , it is referred to as an increase in demand.

Increased demand can be represented on the graph as the curve being shifted to the right. At each price point, a greater quantity is demanded, as from the initial curve D1 to the new curve D2.

In the diagram, this raises the equilibrium price from P1 to the higher P2. This raises the equilibrium quantity from Q1 to the higher Q2. A movements along the curve is described as a "change in the quantity demanded" to distinguish it from a "change in demand," that is, a shift of the curve.

The increase in demand could also come from changing tastes and fashions, incomes, price changes in complementary and substitute goods, market expectations, and number of buyers. This would cause the entire demand curve to shift changing the equilibrium price and quantity. Note in the diagram that the shift of the demand curve, by causing a new equilibrium price to emerge, resulted in movement along the supply curve from the point Q 1 , P 1 to the point Q 2 , P 2.

If the demand decreases , then the opposite happens: If the demand starts at D2 , and decreases to D1 , the equilibrium price will decrease, and the equilibrium quantity will also decrease. The quantity supplied at each price is the same as before the demand shift, reflecting the fact that the supply curve has not shifted; but the equilibrium quantity and price are different as a result of the change shift in demand. When technological progress occurs, the supply curve shifts. For example, assume that someone invents a better way of growing wheat so that the cost of growing a given quantity of wheat decreases.

Otherwise stated, producers will be willing to supply more wheat at every price and this shifts the supply curve S1 outward, to S2 —an increase in supply. This increase in supply causes the equilibrium price to decrease from P1 to P2.

The equilibrium quantity increases from Q1 to Q2 as consumers move along the demand curve to the new lower price. As a result of a supply curve shift, the price and the quantity move in opposite directions. If the quantity supplied decreases , the opposite happens. If the supply curve starts at S2 , and shifts leftward to S1 , the equilibrium price will increase and the equilibrium quantity will decrease as consumers move along the demand curve to the new higher price and associated lower quantity demanded.

The quantity demanded at each price is the same as before the supply shift, reflecting the fact that the demand curve has not shifted. But due to the change shift in supply, the equilibrium quantity and price have changed. The movement of the supply curve in response to a change in a non-price determinant of supply is caused by a change in the y-intercept, the constant term of the supply equation.

The supply curve shifts up and down the y axis as non-price determinants of demand change. Partial equilibrium, as the name suggests, takes into consideration only a part of the market to attain equilibrium. Jain proposes attributed to George Stigler: The supply-and-demand model is a partial equilibrium model of economic equilibrium , where the clearance on the market of some specific goods is obtained independently from prices and quantities in other markets.

In other words, the prices of all substitutes and complements , as well as income levels of consumers are constant. This makes analysis much simpler than in a general equilibrium model which includes an entire economy. Here the dynamic process is that prices adjust until supply equals demand.

It is a powerfully simple technique that allows one to study equilibrium , efficiency and comparative statics. The stringency of the simplifying assumptions inherent in this approach make the model considerably more tractable, but may produce results which, while seemingly precise, do not effectively model real world economic phenomena.

Partial equilibrium analysis examines the effects of policy action in creating equilibrium only in that particular sector or market which is directly affected, ignoring its effect in any other market or industry assuming that they being small will have little impact if any.

The model is commonly applied to wages , in the market for labor. The typical roles of supplier and demander are reversed. The suppliers are individuals, who try to sell their labor for the highest price. The demanders of labor are businesses, which try to buy the type of labor they need at the lowest price. The equilibrium price for a certain type of labor is the wage rate. In both classical and Keynesian economics, the money market is analyzed as a supply-and-demand system with interest rates being the price.

The money supply may be a vertical supply curve, if the central bank of a country chooses to use monetary policy to fix its value regardless of the interest rate; in this case the money supply is totally inelastic. On the other hand, [8] the money supply curve is a horizontal line if the central bank is targeting a fixed interest rate and ignoring the value of the money supply; in this case the money supply curve is perfectly elastic.

The demand for money intersects with the money supply to determine the interest rate. Demand and supply relations in a market can be statistically estimated from price, quantity, and other data with sufficient information in the model.

This can be done with simultaneous-equation methods of estimation in econometrics. Such methods allow solving for the model-relevant "structural coefficients," the estimated algebraic counterparts of the theory.

The Parameter identification problem is a common issue in "structural estimation.


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If producers expect prices to increase, supply will increase. Expect prices to decrease, and supply will decrease.

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Supply for a good is said to be _____ if the quantity supplied responds only slightly to changes in the price. For each determinant of demand, explain how the demand curve can shift both to the right and to the left PRICE-The law of demand states that when prices rise, the quantity demanded falls. This also means that, when prices drop, demand will rise.

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The determinants of supply are any factors other than the product's price that have effect on the supply of a good or service and cause the supply curve to shifts. The demand curve shows the quantities of a product that will be purchased at various possible prices, other things equal. Learn supply and demand supply demand determinants with free interactive flashcards. Choose from different sets of supply and demand supply demand determinants flashcards on Quizlet.