Demand and Supply Flashcards
Demand
The quantity of a good or service consumers are willing and able to purchase at a particular price and at a particular time; ceteris paribus
Supply
A quantity of a good or service firms and producers are willing and able to produce at a particular price and at a particular time; ceteris paribus
Laws of Demand
- As price decreases, quantity demanded increases.
- There is an inverse relationship between price and quantity demanded.
- Movements along the demand curve will be called a change in quantity demand.
- Shift of the demand curve is called a change in demand.
Laws of Supply
- There is a positive relationship between price and quantity supplied.
- A decrease in the price of a substitute would lead to an outward shift in the demand curve.
- As price increases quantity supplied would increase.
Determinants of Demand
- Increase in income.
- Price of a substitute.
- Seasonal Changes
4 . Income Taxes - Personal Tastes
- Consumer Expectations
Determinants of Supply
- Technology
- A fall in the price of resources (makes production $ cheaper)
- Subsidies (government subsidy will make production cheaper.
- Seasonal Changes
Market
Interaction of buyers and sellers
Price Mechanism
A graphical representation of forces of demand and supply to determine price and allocation of resources.
Market Equilibrium
a situation where quantity demanded and quantity supplied of a good are equal.
Equilibrium Price
where quantity demanded and quantity supplied of a good are equal in price.
Equilibrium Quantity
no surplus and no shortage
Elements of the price mechanism
- PRICE
- QUANTITY
Demanded
Supplied - EQUILIBRIUM
Price
Quantity Supplied
Quantity Demanded
4. SCARCITIES
5. SURPLUSES (overproduction)
6. SCARCE RESOURCES
7. CONSUMERS
8. PRODUCERS
9. RESOURCE ALLOCATION- EFFICIENCY
