Efficient markets

What is the definition of supply in economic terms?

The amount of a good or service that producers are able and willing to supply at various prices.

What happens to quantity demanded as price goes up?

Quantity demanded goes down.

What effect explains the inverse relationship between price and quantity demanded?

The Real Income Effect, because individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same.

What is the definition of elasticity of demand?

A measure of consumer’s sensitivity to a change in price.

Give an example of a product that is generally considered inelastic.

Salt, sugar, medicine, or milk.

What happens when demand meets supply?

The equilibrium price is established.

What results when the price is set too low in a market?

Shortages occur, where quantity demanded is greater than the quantity supplied.

What occurs when the price is too high in a market?

Surpluses occur, where quantity supplied is greater than quantity demanded.

What are factors that can shift demand?

Changes in income, number of consumers, consumer tastes and preferences, consumer expectations, price of substitute goods, and price of complementary goods.

What can cause supply to change?

Changes in the cost of inputs, number of producers, conditions due to natural disasters or international events, technology, producer expectations, and government policy.