B Explain the Principles of Demand and Supply Flashcards
The quantity supplied is greater at higher prices. The quantity demanded is greater at lower prices. A demand function provides the quantity demanded as a function of price of the good or service, the prices of related goods or services, and some measure of income. A supply function provides the quantity supplied as a function of price of the good or service and the prices of productive inputs, and depends on the technology used to produce the good or service. Using values for all the variabl
Demand: A demand function provides the quantity demanded as a function of price of the good or service, the prices of related goods or services, and some measure of income.
A consumers ability to make purchases at a price
A demand function for leather shoes will likely depend on, among other factors, the price of plastic shoes (a substitute) and average income of all workers (who would be consumers of shoes).
In a demand function for Good M, if the price of a substitute for Good M decreases, the quantity demanded of Good M: decreases. The price coefficient of a substitute in a demand function is positive. This means a decrease in the price of a substitute for a good will decrease the quantity demanded of that good.
Supply: A supply function provides the quantity supplied as a function of price of the good or service and the prices of productive inputs, and depends on the technology used to produce the good or service.
A sellers will and ability to produce at price P
A supply function will depend on the price of Input prices.
Average Hourly Wage is an input
Principles of Demand
most important factor in Demand analysis: The law of demand: Price goes up sales go down. Price goes down sales go up.
Demand function: Captures demand drivers and relationships (consumers incomes, tastes and preferences, prices of subsitutes or complements, etc)
Own-price: Refers to the price of the good itself.Own-price moves along the demand curve.
Demand curve interpretation,
demand curve shows the highest quantity a household would buy at a given price or the highest price it would be willing to pay for a given quantity
Demand shifts vertically: indicates a households willingness to pay more.
Demand shifts horizontally: indicates that a households willingness to buy more.
Qdx=f(Px,I,Prelated goods)
Other variables - income, taste and preferences, substitutes or complements
Principles of Supply (law of supply: Supply and Price have a positive slope)
Supply - The willingness and ability to sell a good or service
General: Producers sell a good for a price at least equal to the marginal cost of production
The supply function: To produce and Supply is a function of the goods selling price which should equate to or exceed the marginal cost of production, capital
Output Production and supply depends on the costs of inputs
Changes in supply v. Supply curve is positively sloped (slopes in S and D depend on P’s relationship to supply or demand)
A mandatory rise in price denotes an increase in lowest acceptable price (price floor) which reflects the now higher marginal cost of production resulting from the increased input price the firm must now pay for the labor. (Assumes min wage?)
Law of Supply: Greater Quantity is supplied at higher prices
Supply depends on the selling price as well as the costs of production which in turn depend on technology, labor cost, production input costs (raw materials, etc)
The basics of cost at the simplest level
the technology of production: The rules that govern the transformation of inputs (factors of production) into finished goods and services. transforming inputs, or factors of production (such as land, labor, capital, and materials) to produce a good or service into its finished form.
Principles of Demand and Supply
The quantity supplied is greater at higher prices. The quantity demanded is greater at lower prices.
Producing a demand or supply curve
Using values for all the variables other than price and inverting a demand (supply) function produces a demand (supply) curve.
