supply & femand practice

Ceteris Paribus

Everything else stays the same while analyzing one variable

Supply

The quantity of a good or service producers are willing and able to sell at different prices

Demand

The quantity of a good or service consumers are willing and able to buy at different prices

Law of Demand

When price increases, quantity demanded decreases assuming everything else stays the same

Law of Supply

When price increases, quantity supplied increases assuming everything else stays the same

Demand Schedule

A table or graph showing how much consumers buy at different prices

Supply Schedule

A table showing how much producers sell at different prices

Income Effect

Change in buying caused by a change in purchasing power

Substitution Effect

Consumers switch to cheaper alternatives when prices rise

Market Equilibrium

The point where quantity supplied equals quantity demanded

Price Elasticity of Demand

Measures how much demand changes when price changes

Inelastic Goods

Goods whose demand changes very little when price changes

Aggregate Supply

Total goods and services producers supply in an economy

Aggregate Demand

Total goods and services demanded in an economy

Price Ceilings

A legal maximum price set by the government

Deadweight Loss

Loss of economic efficiency when equilibrium is not reached

Price Floors

A legal minimum price set by the government

Externalities

Costs or benefits affecting people not involved in the transaction

Five Factors that Shift the Demand Curve

Tastes and preferences, population or demographics, income, consumer expectations, and prices of related goods

Six Factors that Shift the Supply Curve

Cost or availability of resources, producer expectations, technology, prices of related goods, government policies, and number of sellers

Normal Goods

Goods whose demand increases when income rises such as new clothes

Inferior Goods

Goods whose demand decreases when income rises such as instant noodles

Substitute Goods

Goods that replace each other such as Pepsi and Coke

Complementary Goods

Goods used together such as phones and phone chargers

Price Elasticity of Demand and Inelastic Goods

Price elasticity measures how responsive demand is to price changes while inelastic goods have little change in demand when price changes

Reasons a Good Is Inelastic

The good is a necessity, has few substitutes, takes a small part of income, or has strong brand loyalty

Price Ceiling vs Price Floor

A price ceiling is a maximum legal price set below equilibrium causing shortages while a price floor is a minimum legal price set above equilibrium causing surpluses

Taxes and Deadweight Loss

Taxes raise prices and reduce buying and selling so some beneficial trades no longer occur creating lost economic efficiency