Demand/Supply Test Flashcards
What is quantity demand?
What you’re willing and able to pay at a PARTICULAR POINT
Why does the demand curve go downward to the right?
- substitution effect
- income effect
- diminishing marginal utility
What is the substitution effect?
If the price goes up for a particular product, consumers buy less of that product and more of another substitute product (and vice versa)
What is the income effect?
If the price goes down for a product, the purchasing power increases for consumers- allowing them to purchase more
What is the law of diminishing marginal utility?
States that as you consume more units of any good, the additional satisfaction from each additional unit will eventually start to decrease
-the more you buy of ANY GOOD the less satisfaction you get from each new unit
What are the factors that shift the demand curve?
1) number of consumers
2) change in income
3) taste and preferences
4) expectation of price changes
5) related goods
A. Substitute goods
B. Compliments
6) taxes
What are normal goods?
Average products
What are inferior goods?
Cheap products
What is elasticity?
Measurement of consumers responsiveness to a change in price
What is inelasticity?
Insensitive to a change in price
What are characteristics of inelastic demands?
- few substitutes
- necessities
- small portion of income
- required now, rather than later
- elasticity coefficient
In inelastic demands
People will continue to buy a product no matter what the price
In an elastic demand
The amount people buy is sensitive to price
What are general characteristics of elastic goods?
- many substitutes
- luxuries
- large portion of income
- plenty of time to decide
- elasticity coefficient > 1
Elastic demand
⬆️P⬇️TR
⬇️P⬆️TR
Inelastic demand
⬆️P⬆️TR
⬇️P⬇️TR
What is demand?
The different quantities of goods that consumers are willing and able to buy at ALL PRICES
What is supply?
The different quantities of a good that sellers are willing and able to sell (produce) at different prices
What is the law of supply?
There’s a direct relationship between price and quantity supplied
P⬆️QS⬆️
P⬇️QS⬇️
Why does the supply curve go up and to the right?
Profit motive
What is cost?
How much a company pays to produce something
What is price?
How much a company sells a product for
What is a subsidy?
Government pays producer to produce a product
What are the non-price factors of supply?
- # of firms
- Cost of resources
- Price of related goods/ opportunity cost
- Future price expectations
- Advances in technology
- Government regulation
- Subsidies (increases)
- Taxes
Anything with act behind it….
Increases price of production
Why is there no total revenue test for supply?
Because total revenue will always go up
When a supply is elastic what does that mean?
- made quickly
- made w/ little expense or use of resources
What does it mean for supply to be inelastic?
- can’t be made regardless of funds
- resource intensive
What drives up the price of a product?
Competition among consumers
What drives down the price of a product?
Competition among sellers
