Business Econs - Chp 3 - Demand and Supply

Market demand

Market demand

the demand by all the consumers of a given good or service

Demand

willingness and ability to buy Goods and Services

Supply

willingness and ability to sell Goods and Services

Demand schedule

table that shows the relationship between the price of a product and the quantity of the product demands

Demand curve

a curve that shows the relationship between the price of a product and the quantity of the product demanded

Ceteris paribus (all else equal) condition

when analysing the relationship between two variable (price and quantity demanded), other variables must be held constant

Quantity demanded

the amount of a Good or Service that a consumer is willing and able to purchase at a given price

Law of Demand

When Price falls, Quantity Demanded increases

when Price rises, Quantity Demanded decreases

Two effects happen when the price of a Good falls

1. Consumers substitute toward the newly less-expensive Good (substitution effect)

2. Consumers have more purchasing power, which is like an increase in income (income effect)

Substitution effect

Change in the quantity demanded of a good results from a change in price, making the Good more or less expensive relative to other goods that are substitutes

Income effect

The change in the Quantity Demanded of a good that results from the effect of a change in the Good’s price on a consumers’ purchasing power

Increase in Demand

Shift to the Right

Decrease in Demand

Shift to the Left

Factors that influence Market Demand

Income (normal/inferior)

Price of related Goods

Tastes

Population and demographics

Expected future price

Normal goods

Goods for which the demand increases as income increases, and decreases as income decreases

Inferior Goods

Goods for which the Demand increases as income decreases, and decreases as income increases

Normal Goods examples

Clothing

Restaurant meals

Vacations

Inferior Goods examples

Second-hand clothing

Ramen noodles

Substitutes

Goods and Services that can be used for the same purpose

Complements

Goods and services that are used together

Substitutes examples

Big Mac and Whopper

Almond milk and Cow milk

Coffee and Tea

Complements examples

Left and Right shoes

Cereal and milk

Pen and Pen Ink

Demand for Big Mac if Whopper increase Price

Demand increase

Demand for Mcd’s fries if price of Big Mac increase

Demand decrease

Positive Taste

Shift to the Right

Negative taste

Shift to the Left

Demographics

Characteristics of a population with respect to age, race, and gender

Increase in Demographics

Increase in the number of people buying something will increase the amount demanded

Expected Future Price

Future products are substitues for current products

Expected increase in price tomorrow

Increases Demand today

Expected decrease in price tomorrow

Decreases Demand today

Change in demand

Shift curve

Change in quantity demanded

Movement along the curve

Supply schedule

Table that shows the relationship between the price of a product and the quantity of the product supplied

Supply curve

Curve that shows the relationship between the price of a product and the quantity of the product supplied

Quantity supplied

The amount of a good or service that a firm is willing and able to supply at a given price

The law of Supply

Increase in Price, Increase in Quantity Supplied

Decrease in Price, Decrease in Quantity Supplied

Increase in Supply

Shift to the Right

Decrease in Supply

Shift to the Left

Factors that influence Market Supply

Prices of inputs

Technological change

Prices of substitutes in production

Number of firms in the market

Expected future price

Inputs

things used in the production of a good or service

Increase in price of an input

Decrease in Supply

Decrease in price of an input

Increase in Supply

Technological change

positive or negative change in its ability to produce a given level of output with a given quantity of inputs

Increase in Technological change

Increase in Supply

Decrease in Technological Change

Decrease in Supply

Increase Number of Firms

Increase in Supply

Decreased Number of Firms

Decrease in Supply

Expected Increase in Price tomorrow

Decrease in Supply today

Expected Decrease in Price tomorrow

Increase in Supply today