unit 2 test supply and demand

Law of Demand

When price rises, demand falls. When price falls, demand rises.

Law of Supply

When price rises, quantity supplied of the good rises. When price falls, quantity supplied of the good falls.

Law of Supply and Demand

The price of any good adjusts to bring supply and demand into balance.

Quantity Demanded (Qd)

The amount of the good that buyers are willing and able to purchase.

Demand (QD)

The sum of all individual demands for a particular good/service.

Quantity Supplied (Qs)

The amount of goods that sellers are willing and able to sell.

Supply

The sum of all supply for a particular good/service.

Shifters of Demand Curve

1. Income

2. Price of Substitute Goods

3. Price of Complement Goods

4. Taste

5. Expectations

Shifters of Supply Curve

1. Input Prices

2. Technology

3. Expectations

4. Number of Sellers

Perfectly Inelastic

Elasticity = 0

Vertical line.

Inelastic

Elasticity < 1

Steep slope.

Unitary Elastic

Elasticity = 1

45 degree angle.

Elastic

Elasticity > 1

Less than 45 degree angle.

Perfectly Elastic

Elasticity is infinite.

Horizontal line; no real life examples.

Equation for Price Elasticity

(% QD)/(% P)

Equation for Percent Change

((O-N)/(O)) x 100

Factors that Determine Elasticity

1. Availability of Close Substitutes

2. Necessity vs. Luxury

3. Taxes/Subsidies

4. Definition of the Market

5. Time Horizon

Normal Goods

Name brand

Inferior Goods

Off-brand

Demand Schedule

Table that shows the relationship between the price of a good and the quantity demanded (Qd)

Supply Schedule

Table showing the relationship between price of a good and quantity supplied (Qs)

Equilibrium

Where the supply and demand curves intersect

*noted by an asterisk*

Equilibrium Price

Price balancing QD and QS

Equilibrium Quantity

QS and QD at equilibrium price

Surplus

When price is above equilibrium

Shortage

When price is below equilibrium

Price Floor

Legal minimum on the price at which a good can be sold

Price Ceiling

Legal maximum on the price at which a good can be sold