12. Supply & Demand Flashcards
Define: Supply
Quantity (Q) produced at a given price (P)
What drives supply?
In our economic system, supply is driven by price
Supply: Demand
Quantity (Q) purchased at a given price (P)
What drives demand?
Demand is driven by price and other issues
Define: Equilibrium Point
Given price (P) and quantity (Q) at which both supply and demand are satisfied
P=Q
Define: Disequilibrium Point
Given price (P) and quantity (Q) where markey is imbalanced
P does not = Q
Define: “Invisible Hands”
Adam Smith
Cobweb Theory
Summation of individual acts moving markets
For the “cobweb” to work, supply and demand must respond similarly to price changes
Define: Elastic
Q (qunatity) is sensitive to P (price)
Define: Inelastic
Q (quantity) is not sensitive to P (price)
What happens when supply and demand categorize differently?
“Invisible hands” can drive the system to boom and bust
Spirals out rather than in
What type of products show inelastic demand?
Staples
Basic foods and water
Insulin to diabetics
Heroine to an addict
(Except for the very, very poor)
What type of products show elastic demand?
Luxuries
Show tickets, sports cars, fancy clothing
(Except for the very, very rich)
What type of supply does ag have?
Short-term inelastic supply
Can’t stop calves from growing or delay harvest
Long term, all supply is _______
Elastic
What is the main reason behind government farm programs?
Desire to protect food supply from “boom and bust” cycles
