Demand and Supply Flashcards
Competitive Market
Freely competitive markets encourage sellers to meet consumers’ needs and wants through the quality and price of their wide variety of goods. It is the opposite of market power
Demand
The quantity of a good or service that consumers are willing and able to purchase at various prices during a specific time period, ceteris paribus.
Law of Demand
The principle that as the price of a product decreases, the quantity demanded of it will increase, ceteris paribus.
Non price determinants of demand (4)
Factors affecting demand other than price; they cause shift.
1. Income
2. Price of related goods
3. Tastes and preferences
4. Future price expectations
Normal good
Goods whose demand increases as people’s incomes increase.
Inferior good
Goods whose demand decreases as people’s incomes increase.
Substitute good
Goods that have similar characteristics and uses to consumers.
Complementary good
Goods that are consumed together.
What happens when the price of Coca-cola shifts to the demand curve of Pepsi
- Identify subsitute
- Demand shifts inward
What happens when there is a decrease in price of xbox consols to the quantity of xbox video games
- identify complementary goods
- Demand curve shifts oitward
Tastes and preferences
when goods become more or less popular because of
fashion, current events or promotion campaigns,
demand is affected and the demand curve may shift to the right or to the left.
future price expectations
If people expect prices of goods and services to increase in the near future, they may decide to purchase more of the good now, in the hope of avoiding higher prices later.
Produces would want tp increase price to increase profits
Expectations about economys future
Expect to do well
consumers: more income –> increased spending
producers: increase production to earn higher profits
Demographic changes
Changes in size, structure, and distribution. Significant on the numer and type of goods demanded
producers
the people, companies, or countries that make, grow, or supply goods, services or resources in a market.
Supply
the quantity of a good or service that producers are willing and able to offer at various prices during a specific time period,
Law of diminisging marginal returns
The principle that adding more of one factor of production (input), while holding at least one other factor of production constant, will at some point yield lower marginal returns (output/product).
Marginal return
The additional returns (output/product) gained from adding an additional factor of production (input).
Marginal cost
The cost of producing one more unit of a good.
What happens in the short run for marginal costs
Marginal costs for a firm and for an industry increase as output increases and marginal returns decrease.
When do total returns decline
When the marginal returns are NEGATIVE
Non price determinants of supply
- costs of production
- technological changes
- future price expecattions
- number of firms in the market
- Government intervention
Increase in a cost of factor of production shifts the supply curve …
left
Technological improvemnet
increase the supply of a good or service by increasing productivity – the quantity of output per unit of input.
Future price expecations (supply)
Hoadering some part of their stock from the market in order to sell it higher in the future if they expect their prices to increase
Expecations about the economys future (supply)
If economy does well, people have more money and there will be more demand. More will be supplied to meet it
Number of firms in the market (supply)
Market supply shifts outward when all the number of firms that offer the same good increases
Joint supply
When two or more goods are derived from the same product so that it is not possible to produce more of one without producing more of the other.
Competitive Supply
When the production of two goods use similar resources and processes; if a supplier produces more of one good, it means producing less of the other.
Indirect tax
SHIFTS INWARD
A tax imposed on a good or service; it is typically paid to the government by the producer or supplier and is considered a cost of production.
Subsidy
SHIFTS OUTWARD
An amount of money granted by the government to a firm or industry; it reduces the firm’s costs of production, increasing the supply of the good or service.
Non price determinants of demand supply recap
An increase in demand graph explained
An increase in supply to new equilibrium explained
