Demand and Supply Part 1 Flashcards
relation showing the quantities of a good that consumers are willing and able to buy per period at various prices
Demand
demand of an individual consumer
Individual demand
sum of the individual demands of all consumers in the market.
market demand
the relationship between prices and the specific quantities demanded at each
demand schedule
curve or line showing the quantities of a particular good demanded at various prices during a given period, other things constant
demand curve
sum of the individual demand curves for all consumers in the market
market demand curve
amount demanded at a particular price
quantity demanded
the quantity of demanded products per period relates inversely to their price, other things constant
Law of Demand
product’s price changes demand due to people buying and consuming other substitute goods
substitution effect
product’s price changes a consumer’s real income or purchasing power (the capacity to buy within a given income).
income effect
change in total economic utility (or simply utility) resulting from a one-unit change (meaning buying more than one) when you consume a product or service
Marginal utility
amount of satisfaction a consumer receives from the consumption of a product or service.
Economic utility
the more of the product or service an individual consumes per period, other things constant (ceteris paribus), the smaller the marginal utility of each additional unit consumed.
Law of Diminishing Marginal Utility
2 examples of applications of Diminishing Marginal Utility:
- Restaurants that have all-you-can-eat specials
- Having a second copy of today’s newspaper
the relationship between the demand for a commodity and the factors (product’s price, prices of related products, level of income, taste, preferences, etc.) that determine or influence this demand
demand function
formula for finding the demand function
QD = a – bP
If there is a movement from one point to another (or from one price-quantity combination to another) along the same demand curve, there is a _________
change in quantity demanded (∆QD)
When an entire demand curve shifts leftward or rightward, there is a ________
change in demand
What are the 6 factors/forces that cause changes to the demand curves?
1.Taste or Preference
2.Changing Incomes
3.Population Change
4.Occasional or Seasonal Products
5.Substitute and Complementary Goods
6.Expectations of Future Prices
consumers’ personal likes or dislikes for certain goods and services.
Taste or Preference
An increase in one’s income increases an individual’s capacity or power to demand products or services that they cannot buy due to having a lower income.
Changing Incomes
What are the 2 broad categories vary on how demand for the good is responding to changes in income?
- normal goods
- inferior goods
Where there is an increase in income, there is an increase in the demand for _________
normal goods
When there is an increase in income, there is a decrease in demand ________
inferior goods
examples of inferior goods
Ukay-ukay clothing
Jeepney rides
Secondhand furniture
examples of normal goods
New clothes
Car
Plane rides
New furniture
An increase in the demand for some goods or services, particularly for basic goods, results from an increasing population
Population Change
Various events and seasons within the year may cause a movement on the demand curve for specific goods
Occasional or Seasonal Products
interchanged with another good, usually offered at a lower price, thus making them more attractive to customers
Substitute and Complementary Goods
If customers expect the price of a product or service to increase (or decrease) in the future, it may lead to an increase (or decrease) in current demand
Expectations of Future Prices
a relation showing the quantities of goods producers are willing and able to sell at various prices at a given period, and other things are held constant
Supply
the supply of an individual producer
Individual supply
supply from all producers in the market for that good.
market supply
table listing the various prices of a product and the specific quantities supplied at each of these prices at a given time
supply schedule
curve or line showing the quantities of a particular good supplied at various prices during a given period and other things held constant
supply curve
shows the total quantities of all producers at various prices
market supply curve
the amount offered for sale at a specific price, as shown by the point on the given supply curve.
quantity supplied
states that the quantity of product supplied during a period is usually directly related to its price, other things constant
Law of Supply
mathematical notation that links the dependent variable, quantity supplied (QS), with various independent variables that determine quantity supplied.
supply function
formula for supply function
QS = c + dP
If there is movement from one point to another along the same supply curve, there is a _________
change in quantity supplied (∆QS)
What are the 6 forces/independent variaibles that cause changes to the supply curve?
- Optimization in the Use of Factors of Production
- Technological Change
- Future Expectations
- Number of Sellers
- Weather Conditions
- Government Policies
An increase in supply will happen when there is an optimization of the utilization of production factors (economic resources)
Optimization in the Use of Factors of Production
There is an increase in the supply brought by the introduction of cost-reducing innovations.
Technological Change
These can impact not just buyers but also sellers
Future Expectations
A greater supply of products and services will be available if more sellers are in the market – such a variable directly impacts the quantity supplied.
Number of Sellers
There is a reduction in the supply of agricultural commodities during natural disasters
Weather Conditions
When quotas and tariffs on imported products are removed, there is an effect on the supply, and when restrictions and quotas or tariffs are lowered, there is a boost in the supply of goods in the market due to imports
Government Policies
when the quantity consumers are willing and able to buy equals the quantity producers are willing and able to sell.
Market equilibrium
equates quantity demanded with quantity supplied
Equilibrium price (market-clearing price)
a mismatch between the quantity demanded and quantity supplied as the market seeks equilibrium
Disequilibrium (Market Disequilibrium)
the difference between what consumers are willing and able to pay for a given quantity of a good and what they pay
Consumer surplus
As supply remains constant, an increase (or decrease) in demand increases (or decreases) both equilibrium price and quantity.
Changes in Demand
If there is an increase (or decrease) in supply, as demand remains constant, it will decrease (or increase) in the equilibrium price and increase (or decrease) in the number of goods sold in the market
Changes in Supply
The changes in both supply and demand result in a combination of individual changes
Complex Cases
When there is an increase in supply and a decrease in demand
Both equilibrium quantity and equilibrium price will fall: S’ < D’.
The equilibrium quantity will rise, and the equilibrium price will fall: S’ > D’.
When there is a decrease in supply, and there is an increase in demand
The equilibrium quantity will fall, and the equilibrium price will rise: S’ > D’.
Both equilibrium quantity and equilibrium price will rise: S’ < D’.
When there is an increase in both supply and demand
The equilibrium quantity will rise, and the equilibrium price will fall: S’ > D’.
Both equilibrium quantity and equilibrium price will rise: S’ < D’.
When there is a decrease in both supply and demand
Both equilibrium quantity and equilibrium price will fall: S’ < D’.
The equilibrium quantity will fall, and the equilibrium price will rise:
S’ > D’.
the government’s specification of minimum or maximum prices for certain goods and services when the government considers existing prices disadvantageous to the producer or consumer.
Price controls
2 types of price control
- price floor
- price ceiling
a legal minimum price below which a product cannot be sold
price floor(floor price)
a legal maximum selling price above which a product cannot be sold.
price ceiling
in the market – producers are taking advantage of the consumers since they are selling their products at higher prices in illegal/black markets, and consumers are left with no option but to purchase products at a price higher than the price ceiling.
shortage
states that price decreases when supply is greater than demand and increases when demand is greater than supply
Law of Supply and Demand
