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Demand
The Various amounts of a product that consumers are willing and able to purchase at possible prices during a specific time period.
Law of Demand
Diminishing marginal utility ( consumers will only buy additional units if price reduces, income effect ( lowering prices increases the purchasing power of buyers), and substitution effect ( buyers will want to substitute a high price product with a similar lower price product)
Determinents/ factors that impact demand
TRIBE:
1) Taste/consumer preference
2)Price of related goods ( substitution/complementary goods)
3) Consumer Income
4) Number of buyers ( increase number of buyers causes a shift right)
5) Consumer expectations
Complementary vs subsition goods
Substitution goods: as price of one good declines there is a decrease in demand for the other good
Complementary good: as the price of one good declines, there is an increase in demand for the other good
Changes in quantity demanded vs change in demand
Quantity demanded means consumers choosing to move from one point to another on the fixed demand curve ( price went up or down)
Change in demand means the consumers have changed their minds based on the factors of demand.
Supply
The Various amounts of product that producers are willing and able to make available for sale at each possible price during a specific period
Law of supply
As prices rise the quantity supplied rises as prices fall the quantity supplied falls
Determinants of supply:
Factors that cause a change in supply
ROTTEN
1) Resource Price ( labor, capital, land, and enterpenural ability)
2) Other goods price ( For substitution a higher price of one product may cause suppliers to shift towards that product compared to the other product. For complementary goods an increase in price may cause a shift in supply to increase since they are made for together)
3) Technology ( Improvements cause supply to be increased)
4) Taxes and subsidies ( taxes cause the supply curve to shift left while subsidies cause it to shift right)
5) Producer expectations
6) Number of sellers
Productive efficiency
The production of any particular good in the least costly way
Allocative efficiency
The particular mix of goods and services most highly valued by society. ( it needs certain goods in order to produce other goods)
What happens to equilibrium if both supply and demand increase/decrease
If both supply and demand increase or decrease the equilibrium quantity either rises or falls depending if it’s decrease or increase however EQUILIBRIUM PRICE is intermediate/ unknow
*IF THE SHIFTS ARE BOTH EQUAL THEN THEY WILL CANCEL EACH OTHER OUT ON THE ONE THEY DON’T AGREE ON.
What happens to equilibrium if supply or demand increase/decrease while the other increases or decreases
If both supply or demand either increase or decrease while the other is the opposite means that there will be a rise in equilibrium price or a decrease in equilibrium price and the equilibrium quantity is interdimate
Price Ceiling
The maximum legal price a seller may place on their product/service
Creates a product shortage
Creates Misallocation
Price floor
The minimum price placed by the government when producers or resource suppliers aren’t getting enough from the market system
There will be a surplus of product
This forces the government to either increase demand or buy the surplus