Demand & Supply Flashcards
Definition of Demand
The amount of a good consumers are both willing and able to buy at every given price
What effect does a change in price have on the Demand Curve
A change in price results in a movement along the demand curve, resulting in a change in quantity demanded.
What are the conditions that change demand
- Income
- A change in the price of a substitute
- A change in the price of a complement
- Redistribution of Income
- Expectation of future price rise
- Availability of credit - interest rate
Definition of Supply
Economic theory indicates that market supply and price vary directly. In other words, a greater amount is supplied at higher prices than at lower prices.
What effect does a change in price have on the supply curve
A change in price will lead to an extension/expansion of quantity supplied.
What are the conditions that change supply
- Changes in cost of production
- Changes in taxes and subsidies
- Price expectations
- The profitability of goods in joint supply
The main reason for a change in costs of production
- A change in input prices - costs of production will rise if wages, raw materials, rents, interest rates and other input prices rise.
- A change in technology - technological advances can fundamentally alter the costs of production.
- Government policy - costs will be lowered by government subsidies and raised by various taxes
Definition of Demand
The amount of a good consumers are both willing and able to buy at every given price
What effect does a change in price have on the Demand Curve
A change in price results in a movement along the demand curve, resulting in a change in quantity demanded.
What are the conditions that change demand
- Income
- A change in the price of a substitute
- A change in the price of a complement
- Redistribution of Income
- Expectation of future price rise
- Availability of credit - interest rate
Definition of Supply
Economic theory indicates that market supply and price vary directly. In other words, a greater amount is supplied at higher prices than at lower prices.
What effect does a change in price have on the supply curve
A change in price will lead to an extension/expansion of quantity supplied.
What are the conditions that change supply
- Changes in cost of production
- Changes in taxes and subsidies
- Price expectations
- The profitability of goods in joint supply
The main reason for a change in costs of production
- A change in input prices - costs of production will rise if wages, raw materials, rents, interest rates and other input prices rise.
- A change in technology - technological advances can fundamentally alter the costs of production.
- Government policy - costs will be lowered by government subsidies and raised by various taxes
