AP Macroeconomics: Section 2 Study Guide

AP Macroeconomics: Section 2 Study Guide 2 characteristics of a competitive market - Answer-1. many buyers and sellers 2. identical good or service the supply and demand model - Answer-a model of how a competitive market works 5 key elements of the supply and demand model - Answer-1. demand curve 2. supply curve 3. demand and supply curve shifts 4. market equilibrium 5. changes in market equilibrium demand schedule - Answer-shows how much of a good or service consumers will want to buy at different prices demand curve - Answer-the graphical representation of the demand schedule; shows how much of a good/service consumers want to buy at a price movement along the demand curve - Answer-a change in the quantity demanded of a good that is the result of a change in that good's price EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 2/10 shift of the demand curve - Answer-a change in the quantity demanded at any given price represented by the change of the original demand curve to a new position, denoted by a new demand curve number of demand shifters - Answer-6 (shift of the demand curve) changes in the prices of related goods: substitutes - Answer-a substitute good is a good that can be used in place of another; substitutes are products that a consumer perceives as similar or comparable (shift of the demand curve) changes in the prices of related goods: complements - Answer-2 goods are complements if a fall in the price of one good makes people more willing to buy the second good (shift of the demand curve) changes in income: normal goods - Answer-a normal good is any good for which demand increases when income increases (shift of the demand curve) changes in income: inferior goods - Answer-an inferior good is a good whose demand decreases when consumer income rises (shift of the demand curve) human: changes in tastes - Answer-economists lump together changes in demand due to fads, beliefs, and cultural shifts under the heading of changes in tastes or preferences (shift of the demand curve) human: changes in expectations - Answer-expectations of a future drop in price lead to a decrease in demand today; expectations of a future rise in price are likely to cause an increase in demand today law of demand - Answer-demand curves slope downwards (inverse); as prices fall, consumer demand rises EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. 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Page 3/10 6 main factors that shift the demand curve - Answer-- change in the price of related goods 1. substitutes 2. complements - change in income 3. normal goods 4. inferior goods 5. change in taste 6. change in expectations market demand curve - Answer-the horizontal sum of the individual demand curves of all consumers in the market for a good/service supply curve - Answer-shows graphically how much of a good or service people are willing to sell at any given price; usually slopes upwards law of supply - Answer-other things being equal, the price and quantity supplied of a good are positively related (as prices rise, the quantity supplied rises) shift of the supply curve - Answer-a result of a change in the quantity supplied at every price movement along the supply curve - Answer-a result of a change in the price of a good/service change in the quantity supplied - Answer-when there is a movement along the supply curve change in supply - Answer-when the supply curve shifts (shift of the supply curve) the cost of inputs - Answer-what is put in, taken in, or operated on by any process/system EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. 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Page 4/10 (shift of the supply curve) government policies - Answer-activity that supports/provides active enouragement (shift of the supply curve) taxes - Answer-tax abatements = a reduction/exemption in taxes for "good" stuff sin taxes = more taxes for "bad" stuff (shift of the supply curve) regulations - Answer-a rule or order that is created and enforced by an authority, such as a government agency, to control or govern conduct (shift of the supply curve) subsidies - Answer-a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low/competitive (shift of the supply curve) the number of firms - Answer-refers to the total count of businesses operating within a specific market (shift of the supply curve) technological change - Answer-efficiency of production (shift of the supply curve) expectations about future prices - Answer-if suppliers expect prices to go up in the future, they decrease their supply today and save inventory to sell for a higher price in the future. (shift of the supply curve) natural disasters and weather - Answer-changes/effects of weather patterns supply schedule - Answer-shows the quantity supplied at each price and is represented graphically by a supply curve EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 5/10 market supply curve - Answer-the horizontal sum of the individual supply curves of all producers in the market for a good/service equilibrium - Answer-when the quantity demanded of agood equals the quantity supplied of that good equilibrium price/market-clearing price - Answer-the price at which the quantity demanded is equal to the quantity supplied, or equilibrium equilibrium quantity - Answer-the quantity of the good bought and sold at equilibrium price point E - Answer-where market equilibrium occurs; where the supply curve and the demand curve intersect shortage - Answer-when the quantity demanded of a good exceeds the quantity supplied; occurs when the price is below its equilibrium level surplus - Answer-when the quantity supplied of a good exceeds the quantity demanded; occurs when the price is above its equilibrium level an increase in quantity demanded... - Answer-leads to a movement along the supply curve due to a higher equilibrium price and higher equilibrium quantity a decrease in supply... - Answer-leads to a movement along the dem