Unit 1: Chapter 4: Supply and Prices Flashcards
Define the Term: Supply
The amount of good and services businesses are willing AND able to provide
Define the Term: The Law of Supply
The higher the price buyers are willing to pay, the greater the quantity of a product businesses will produce and vice versa (all other things being equal)
What happens to a supply curve when there is a DECREASE in supply
A leftward shift
What are the three factors that create changes in supply/willingness to produce more
Change in technology
Change in production costs
Change in the price of related goods
Which way does a supply curve slope and why?
Up and to the right, because the greater the price buyers are willing to pay for the product, the greater the quantity businesses will supply
What is the market equilibrium point?
The point at which supply and demand are completely in balance/meet on their respective curves
Define the Term: Surplus
When there is more of a good/service produced than demand will consume
Be able to draw a demand and supply curve
See page 72 for example
Why might there be more goods produced than demand will consume?
Raised prices
Lowered cost of related goods
Changes in customer expectations
Changes in fads
Define the Term: Price Floor
A barrier (usually imposed by the Government) that prevents the price of a good or service from dropping below a certain point
Define the Term: Shortage
When there is less of a good/service produced than demand will consume
Define the Term: Price Ceilings
A barrier (usually imposed by the Government) that prevents the price of a good or service from rising above a certain point
What occurs when the price of a product is higher than the price at which supply equals demand?
A surplus
What is the simplest solution to a surplus?
Producer lowers the price until quantity demanded equals the quantity he has to supply
What problems can arise from a price floor?
An inability to lower prices results in lower demand and may create a surplus
