Unit 3 Supply and Demand

Honors Economics

Demand

The desire, ability, and willingness to buy a product

Law of demand

As the price of a good or service increases, the quantity demanded decreases. As the price of a good or service decreases, the quantity demanded increases

Supply

The amount of a product that would be offered for sale at all possible prices that could prevail in the market.

Law of Supply

Suppliers will normally offer/supply more if the price for a product increases, but supply less if the price for that product is lower.

Determinants of Demand and Supply (TIMER & GONICE)

Demand: TIMER (Consumers Tastes and Preferences, Consumers Income, Market Size, Change in Expectations, Related Goods), Supply: GO NICE (Government Taxes and Subsides, Others Goods price changes, Number Of Suppliers, Innovation, Cost Of Resources, Expectations of higher or lower prices).

Demand schedule

A listing that shows the various quantities demanded of a particular product at all prices that may prevail in the market over time.

Supply schedule

A listing of the various quantities of a particular product supplied at all possible prices in a market

Price

Many roles, serves a vital role in a free market economy, helps move land labor and capital to the hands of producers, and finished goods to the hands of consumers, provides a common language for buyers and sellers, and creates an efficient resource distribution for producers.

Roll of Price and Advantage of Price

Communicates to both buyers and sellers whether goods and services are scarce or not. Price acts as a signal on deciding whether to buy, sell, or neither. The price system is free and it also provides flexibility when the demand or supply curve shifts.

Diminishing Marginal Utility

The condition that exists when the extra satisfaction we get from using additional quantites of the product begins to diminish

Subsidies

Money or support given by the government to people, businesses, or industries to help lower their costs or encourage certain activities.

Elasticity

Something that is responsive to a change of price

Inelastic demand

a change in price will have little effect on the quantity demanded

Related goods

Determinant of Demand (TIMER)

Complements

Two goods that are bought and used together, and when a price of one of these goods increases or decreases, it will affect other.

Substitutes

Consumers react to an increase of a goods price by consuming less of that good and more of a substituted good, (also applies when a price decreases).

Consumer Surplus

The difference between the maximum price consumers is willing to pay and the price they actually do pay.

Producer Surplus

The difference between the price suppliers receives and the minimum price they would be willing to accept.

Surplus

More supply than demand.

Shortage

More demand than supply.

Equilibrium

Where the markets attempt to go, so if the curve changes, so does the equilibrium. “The Equilibrium Price” intersects in between Supply and Demand.

Price Ceiling

The limit where a price is capped at a certain amount by the government

Price Floor

The limit where a price cannot go lower than a certain minimum set by the government

Marginal Product of Labor

The extra product an industry makes when it hires one more worker

Increasing Marginal Returns

Increasing Marginal Return is when each new worker adds more extra output(product) than the last worker (more labor).

elastic demand

a change in price will greatly affect the quantity demanded

Diminishing Marginal Return

when each new worker adds less extra output(product) than the last worker (less extra labor).