Chapter 3 - Demand, supply and price Flashcards
What is meant by quantity demanded?
How much a consumer desires to obtain a product at a specific price, not how much they actually buy
What is meant by demand?
This is the total demand of a product, it represents the entire curve, and not just a single point.
What is a stock variable?
A stock variable is one that doesn’t change based on time.
Ex: 30 000 eggs in a farm on January 23rd, 2025
What is a flow variable?
A flow of demand per unit of time.
Ex: 2000 eggs per day
What are the variables that affect quantity demanded?
Price. The price of a product will cause a movement along the demand curve.
What are the variables that affect demand (they cause a shift in the entire curve, left or right)
1) income
2) Price of other goods
3) Consumer preferences
4) Population
5) Significant changes in weather
How does income shift the demand curve?
income
a) if we have a normal good and income rises, demand for the good increases (shift to the right)
Ex: when income rises we want to buy more clothes
b) if we have an inferior good and income rises, demand for the good decreases (shift to the left)
Ex: when income rises, we start taking Ubers instead of taking the bus
how do the prices of other goods affect the demand curve?
Substitutes in consumption is when the demand for one good changes based on the price relative to another good.
Ex: If you are buying Toyota corolla and the price of the Honda civic goes down, the demand for Honda civics goes up (shift to the right). On the other hand, if the Price of the Toyota corolla goes up, the demand for Honda civics can also go up again (shift to the right)
We can also have Complements in consumption where 2 or more goods go together and their demands also move together.
Ex: Cars and gasoline. If the price of gasoline goes down, the demand for cars and gasoline goes up (shift to the right)
How do consumer preferences shift the demand curve
Consumer preferences are a very personal thing. They can change based on outside information or just because there is a new trend.
Ex: You hear about this new app called TikTok and everyone seems to want to use it. The demand for TikTok videos will go up. (shift to the right)
How does population shift the demand curve?
The more people are born, the more the demand will go up (shift to the right).
How do significant changes in weather shift the demand curve?
Ex: If there is a cold snap, this would lead to a higher demand for heating services (shift to the right).
Ex: Bad weather in exotic countries like if the Bahamas were to have rainy weather, this would decrease demand for vacations to The Bahamas (shift to the left).
What can cause a change in quantity Demanded?
1) A shift in the demand curve with price being constant
2) the price could change and make a point move along the demand curve
3) A combination of the two
What is meant by quantity supplied?
How much a producer desires to supply a product at a specific price, not how much they actually supplied
What is meant by supply?
This is the total supply of a product, it represents the entire curve, and not just a single point.
What are the variables that affect quantity supplied?
Price. The price of a product will cause a movement along the supply curve
What are the variables that affect supply (they cause a shift in the entire curve, left or right)
1) Cost of inputs
2) Technology
3) Gov’t taxes or subsidies
4) Prices of other products
5) Significant changes in weather
6) Number of suppliers
How do cost of inputs shift the supply curve?
If cost of inputs go down, cost of production will also go down. This will encourage firms (producers) to supply more (shift to the right).
if cost of inputs go up, the opposite happens.
How does technology shift the supply curve?
Technological innovation can reduce cost of inputs which would reduce cost of production and encourage producers to supply more (shift to the right).
How do gov’t taxes or subsidies shift the supply curve?
1) Taxes will make it more costly for firms, this will discourage them to supply (shift to the left)
2) Subsidies will make cost of production cheaper, this will encourage firms to increase supply (shift to the right).
How do prices of other products shift the supply curve?
If we have substitutes in production, this would mean that the price of one product would affect the supply of the other product in the opposite direction.
Ex: If a farmer can produce wheat and oats in the same field, and the price of oats increases, the farmer would start to increase the supply of oats (shift to the right).
Ex: If a farmer again can produce both wheat and oats and the price of oats decreases, they would then increase the supply of wheat instead (shift to the left).
If we have complements in production, this would mean the price of one product would change the supply of another product in the same direction.
Ex: If a producer can make bread and the price of butter increases, the supply of butter and bread would increase together (shift to the right).
How do significant changes in weather shift the supply curve?
Extreme weather can impact the inputs of production.
Ex: Flooding can wipe out a whole crop thus reducing supply (shift to the left).
Ex: Extreme heat can give farm workers heatstroke and stop operations in a apple orchard, thus reducing supply (shift to the left).
How do the number of suppliers shift the supply curve?
Ex: If existing suppliers are making money, more suppliers will join, this will increase supply (shift to the right).
Ex: If existing suppliers are losing money, more suppliers will leave, this will reduce supply (shift to the left)
What can cause a change in quantity supplied?
1) A shift in the supply curve with price being constant
2) the price could change and make a point move along the supply curve
3) A combination of the two
What is a market?
A place where buyers and sellers make exchanges
