Chapter 3 - DEMAND AND SUPPLY Flashcards
Competitive Markets and Prices
the process of strategically selecting price points for your goods or services based on competitor pricing in your market or niche, rather than basing prices solely on business costs or target profit margins.
Change in Quantity demanded vs change in demand
A “change in quantity demanded” refers to a movement along a demand curve, caused solely by a change in price, while a “change in demand” signifies a shift of the entire demand curve, triggered by factors other than price like income, consumer preferences, or price of related goods
Change in quantity supplied vs change in supply
A “change in quantity supplied” refers to a movement along the supply curve, caused solely by a change in price, while a “change in supply” means a shift of the entire supply curve, caused by factors other than price, like input costs, technology, or the number of sellers in the market.
Factors behind Demand
The Demand Curve, Law of Demand
Law of Demand
The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded.
Normal good
A “normal good” is a good where, when an individual’s income rises, they buy more of that good
inferior good
“inferior good” is a good where, when the individual’s income rises they buy less of that good.
substitute good
a good that serves the same purpose as another good for consumers
complementary good
a good that adds value to another good when they are consumed together
Factors behind Supply
The Supply Curve, Law of Supply
Law of Supply
an increase in the price of goods or services results in an increase in their supply
Equilibrium Price (P)
the price at which the quantity demanded and quantity supplied are equal
Equilibrium Quantity (Q)
when supply equals demand for a product
surplus and shortage
a shortage occurs when demand is greater than supply, while a surplus occurs when supply is greater than demand
