The Law of Demand and Supply

This set of flashcards covers key concepts related to the Law of Demand and Supply, including definitions, factors that influence changes in demand and supply, and concepts of elasticity.

The Law of Demand

Demand varies inversely with price.

Demand Curve

Graph that shows the relationship between price and quantity demanded.

Change in Quantity Demanded

Occurs when the price changes, moving along the demand curve.

External factors

Cause shifts in the demand curve; changes in demand occur when factors other than price or quantity change.

Factors that shift demand

1. Consumer Income 2. Future Expectations 3. Population 4. Consumer Preferences 5. Price of Complementary Goods 6. Price of Substitute Goods.

Law of Diminishing Marginal Utility

The satisfaction gained from a product declines with each additional unit consumed.

Price Elasticity

Measures how much consumers respond to price changes.

Elastic Demand

Significant change in quantity demanded due to a price change.

Inelastic Demand

Minimal change in quantity demanded despite a price change.

Supply

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

The Law of Supply

Supply varies directly with price; as price increases, supply increases.

Change in Quantity Supplied

Occurs when the price changes, moving along the supply curve.

Change in Supply

Caused by external factors leading to shifts in the supply curve.

Factors that shift supply

1. Cost of Inputs 2. Future Expectations 3. Population of sellers 4. Government Influence 5. Technology 6. Productivity/Efficiency.

Law of Diminishing Marginal Returns

The output from one unit of production declines with each additional unit acquired.

Elastic Supply

Significant change in quantity supplied due to a price change.

Inelastic Supply

Minimal change in quantity supplied despite a price change.

Price Elasticity of Supply

Measures how much sellers respond to price changes.

Supply vs. Demand

Demand represents what consumers want, while supply represents what sellers decide to make available.