Demand and Supply Flashcards
What does a demand curve show?
Shows the relationship between the quantity demanded of a good and its price
What does it mean when the demand curve shifts to the right?
It means that there is an increase in demand/demand rises.
What are some examples of factors that affect demand? (Non-price determinants)
- Population size/Number of buyers
- Tastes and Preferences
- Expectation of Future Price
- Income
- Prices of Related Goods
What classifies a good to be normal?
When consumers buy more of it when their income rises and vice versa.
What classifies a good to be inferior?
When consumers buy less of it when their income rises and vice versa.
How can the identities of inferior and normal goods be calculated?
It can be calculated from the changes to consumer demand as a result of the changes in income.
How does a change in price affect product?
It affects the quantity supplied in the product.
How does a change in a non-price determinant affect product?
It results in a change in supply.
What are some non-price determinants that affect supply?
- Number of Suppliers
- Technology and Productivity
- Prices of Productive Resources (Cost of Production)
- Sales Tax
- Prices of Related Goods Produced
What is the market equilibrium price?
The quantity demanded is equal to quantity supplied.
What do the equilibrium price and equilibrium quantity refer to?
They refer to a stable point from which there is no inherent tendency to change over time unless a trigger event shifts the demand and/or supply curves.
What happens when there is a surplus of product in the market?
The price lowers and consumers will also seek to purchase at lower prices. The surplus will cause price to fall to the equilibrium price.
What happens when there is a shortage of product in the market?
The price is pushed up and producers will also seek to sell at higher prices. The shortage will cause price to rise to the equilibrium price.
What does the law of supply mean?
It means that there is a direct relationship between the price of any product and the quantity supplied.
(eg. Rise in selling price of product/service ->rise in quantity supplied)
