Demand and Supply Flashcards
What does the demand curve show?
The demand curve shows the relation between price and quantity demanded holding other things constant (i.e The price of related goods, Consumer incomes, Consumer preferences/tastes)
How does the steepness affect how much you sell and the price?
It almost always slopes downward.
The more you want to sell,
The more you have to cut price
What is the causality regarding the consumer and the demand curve?
Causality here runs from price (vertical axis) to demand (horizontal axis).
Consumers observe the price, and decide how much they want to buy
Why does the demand curve slope downward?
- Individuals vary in terms of how much they are willing to pay. Think of an auction.
- A person is willing to pay more for a good initially. Further copies are worth less-dimishing marginal returns
What does the supply curve show?
The supply curve shows the relationship between price and quantity supplied holding other things constant (ie Technology, Input costs, Government regulations)
What is the causality regarding the supplier and the demand curve?
Causality here runs from price (vertical axis) to supply(horizontal axis).
the supply is in response to price
What is the usual shape of the supply curve?
What happens to a firm as you move up the supply curve?
We have drawn this sloping upward.
To get firms to supply more,
We need to raise the price (usually)
. As you move up the firm is less productive
What is demand? compared to quantity demand
The quantity that buyers wish to purchase at each conceivable price.
Quantity demanded is at a particular price
What is supply? compared to quantity supplied
The quantity of a good that sellers which to sell at each possible price.
Quantity supplied is at a particular price
What is market equilibrium?
Market equilibrium is where quantity demanded (not demand) equals quantity supplied (not supply) at the equilibrium price. This is where the market clears.
How will the price of related good cause a shift in demand curve? and give an example
. Price of related goods
- rise in price of substitutues shifts demand curve right
- fall in the price complements shifts demand right
What does a change in the demand curve mean?
Change in the amount concumers want to buy at each price.
What does a change in the supply curve mean?
Change in the amount producers want to supply at each price
How will government regulation cause a shift in the supply curve and give an example?
Suppose safety regulations are tightened, increasing producers’ costs
shift to left for supply curve
What is a change in a quantity demanded/supplied?
Movement along demand/supply curves due to a price change
When is a market in disequilibrium?
When the supply and demand curve do not meet leading to excess supply or excess demand
What is excess supply?
When the quantity supplied exceeds the quantity demand at a given price. Usually above the equilibrium price.
What will a firm do when there is excess supply?
Suppliers have excess stock so they lower their price until they reach the equilibrium price and the market clears.
What will a firm do when there is excess demand?
More is demanded that supplied so sellers run out of stock. They then raise prices until reaching the equilibrium price.
What is excess demand?
When the quantity demanded exceeds the quanity suppplied at a given price.
What does the market do?
- decides how much of a good should be produced
by finding the price at which the quantity demanded equals the quantity supplied - tells us for whom the goods are produced.
those consumers willing to pay the equilibrium price - determines what goods are being produced
there may be goods for which no consumer is prepared to pay a price at which firms would be willing to supply
What are price controls?
Governemnt rules of laws setting price floors or ceilings that forbid the adjustment of prices to clear markets.
What happens if there was a price ceiling below the equlibrium price?
This would cause excess demand. This may be done when rationing food during the war. Allows the poor to afford the food but less is supplied.
What is a consumer surplus?
For a single consumer, the consumer surplus is the difference between the maximum price that she is willing to pay for a given amount of a good or service and the price she actually pays
What is a producer surplus?
The producer surplus for sellers is the amount that sellers benefit by selling at a market price that is higher than they would be willing to sell for
How will the income of the consumer cause a shift in demand curve? and give an example
normal and inferior
How will the consumer preferences/tastes cause a shift in demand curve? and give an example
fashion
How will technology cause a shift in the supply curve and give an example?
more efficient machines= right
How will cost of inputs cause a shift in the supply curve and give an example?
e.g lower wages= right
