Chapter 4 & 5 Notes

demand:

amount of a good or service that people buy at various prices.

Law of demand:

as the price of a good or service goes up, the quantity demanded goes down

Demand curve:

line on a graph showing quantity demanded for a good/service at each possible price

Factors affecting Qd

Price, Diminishing Marginal Utility, Substitution Effect, Real Income Effect

Price Elasticity of Demand:

how much consumers respond to a given change in price

Factors affecting price elasticity

Existence of Substitutes

Percentage of consumer’s total budget for the purchase of a good

The time it takes for consumers to adjust to the price change

Factors that shift the demand curve (Determinants of Demand)

Changes in Population

Changes in Income

Changes in taste and preference

Existence of Substitutes

Availability of complementary goods

Supply:

amount of a product offered for sale at all possible prices

Law of Supply:

as the price rises for a good, the quantity supplied rises; as the price falls, the quantity supplied also falls

A direct relationship exists between price and quantity supplied

Factors affecting quantity supplied

Price, and Law of Diminishing Returns

Determinants of supply:

Cost of Inputs

Technology

Productivity

Competition

Taxes

Subsidy

Expectations

Government regulation