Chapter 3/4/5/6/7 Flashcards
Demand/Supply curves + Factor that may shift
Define demand.
How much of a product will be bought at given prices.
Define effective demand
How much of a good will be bought supported by the ability to afford it.
What kind of a relationship do demand and price have?
Inverse relationship- as price increases, demand decreases.
What happens when the demand curve shirts to the right? And the left?
Right- Quantity demanded at any given price has increased.
Left- Quantity demanded at any given price will fall.
What factors shift the demand curve?
- Population/demographic
- Advertising
- Substitutes
- Income
- Fashion/tastes
- Complements
Explain how income shifts the demand curve.
As disposable income rises, demand for normal goods rise but demand for inferior goods fall.
What are normal goods?
What are inferior goods?
Normal goods- When income rises, demand rises.
Inferior goods- When income rises, demand falls.
Explain how price of substitutes shifts the demand curve.
As the price of a substitute for a product falls, demand for the product will fall.
Explain how price of complements shifts the demand curve.
As the price of a complement rises, the demand for the product falls.
Define substitute and complementary goods.
Substitute- goods that are alternatives to each other.
Complementary- goods purchased and consumed together.
Define supply.
How much of a good is willing to be offered for sale, by sellers, at given prices.
What kind of a relationship do price and supply have?
Direct/ proportionate relationship.
What is fixed supply?
Supply may be fixed if its not possible to provide more of it, e.g tickets for a match (limited).
What factors cause the supply curve to shift?
- Production costs
- Indirect tax
- Subsidies
- Technology
- Natural disasters
Explain how subsidies shift the supply curve.
If subsidies are given to firms, costs of production will be lower so supply will shift to the right.
Describe how indirect taxes shift the supply curve.
If more taxes need to be paid by firms, costs of production will rise, the supply curve will shift to the left.
Describe how new technology will shift the supply curve.
New technology= more efficient labor, so more output produced, supply curve shifts to the right.
Describe how costs of production cause the supply curve to shift.
If costs rise, the businesses may lose profit or may even be in loss, this will reduce motivation for businesses- supply curve shifts to the left.
Define subsidy.
Money paid to firms by the government to reduce production costs.
What is equilibrium price?
The price at which quantity demanded and supplied are equal.
How do we calculate total revenue?
Total revenue= Price x quantity
What is excess supply?
What is excess demand?
Excess supply- Supply> demand, goods are leftover/unsold in the market.
Excess demand- when demand> supply, customers are left without goods in the market.
How do we remove excess supply and excess demand?
Excess supply- lower prices/ reduce supply
Excess demand- increase prices/ increase supply
