Supply And Demand Quiz Set

Quantity Demanded

The amount of a product that consumers are willing and able to buy (at a a specific price)

Law of Demand

As prices increase, quantity demanded decreases; as prices decrease, quantity demanded increases (neg. relationship between price and quantity demanded) assuming everything else stays the same

Income Effects

As prices go down, you feel richer- real income goes up and you buy more

Substitute Effect

As prices go up, consumers look for substitutes (just about every product has a subs.) ex. hamburgers instead of pizza

Elastic Demand

Change in price causes a relatively large change in demand- ex. strawberries

Inelastic Demand

Change in price causes a relatively small change in demand - ex. prescription drugs

Quantity Supplied

The amount of a product that firms are willing and able to sell (at each price)- ex. 10 slice sells at $3

Law of Supply

As prices go up; quantity supplied goes up (pos. relationship between supplies and prices)

Possible Reasons

Marginal Principle- increase the level of activity as benefit goes up (make more $ on each slice)

Individual Firms

increase output; profit motivates new firms to enter the market

Elastic Supply

Increase production cheaply and quickly

Inelastic Supply

Difficult to increase production quickly (small to no change in quantity)

Price Floor

Government sets a minimum price for a good that is above the equilibrium (can't go below the floor) (ex. Minimum wage; corn prices)

Excess supply

Quantity supplied exceeds quantity demanded  (surplus)

Price Ceiling

government sets the maximum price for a good that is below the equilibrium (ex. Rent stabilization) 

Excess Demand

quantity demanded exceeds quantity supplied

Change in Demand

a shift on the demand curve caused by a change in a variable other than a price of the product (pizza); could be a change in income, income taxes, advertising, population, trends, price of a substitute good, price of a complementary good

Normal Good

buy more of a product as your income goes up most products are normal goods- ex. steak)

Inferior Good

buy less of the good as your income goes up- ex. Tuna fish

Change in Supply

a shift of the supply curve caused by a change in a variable other than the price of the product. Suppliers are now willing and able to supply more or less of a product at that particular price

Market Equilibrium

Point where quantity demanded meets quantity supplied (price)