Unit 3 Supply and Demand

What is a market?

Any place where buyers and sellers exchange goods and services

What two characteristics must be present before there can be supply or demand? 

There needs to be an equilibrium price and quantity that consumers and producers agree to before there can be supply or demand. 

What are the five reasons that the supply curve might shift?

Prices/Availability of inputs (resources)

number of sellers

technology

government action

expectations of a future profift

What are the five reasons that the demand curve might shift?

Tastes and preferences

number of consumers

price of related goods

income

future expectations

Why does the supply curve shift leftward when resource costs increase?

When resources increase, producers supply a smaller amount.

What happens to the supply curve any time that the government implements a tax?

The supply curve decreases and shifts to the left causing the price to increase and quantity to decrease. 

Why does the government tax negative externalities like cigarettes so heavily?

attempt to discourage and limit the externality.

Why does the government provide companies with subsidies?

Subsidies are provided to companies to help increase the supply of a good by lowering production cost.

Where is the equilibrium price on a market graph?

A point on a market graph where the supply curve and demand curve intersect. 

What must happen to the market when there is a shortage due to a price ceiling?

The solution is to increase the price of goods. 

What must happen to the market when there is a surplus due to a price floor?

The solution is to decrease the price of goods.

What is a price ceiling?

The maximum price a company can charge for a product.  

What is a price floor?

The minimum price a company can charge for a product. 

Who or What determines the equilibrium price and quantity?

When the quantity demanded by the consumers equals the quantity supplied by producers. 

Why does wrapping paper go “on sale” the day after Christmas?

The price of wrapping paper decreases because there is a surplus in supplies. 

Where must a price ceiling be drawn to indicate a shortage on a market graph?

Below the equilibrium price to indicate a shortage.

Where must a price floor be drawn to indicate a surplus on a market graph?

Above the equilibrium price to indicate a surplus. 

What does the law of supply say?

There is a direct relationship between price and quantity. (Ex: An increase in the price of a product will result in an increase of production and a decrease in price will result in a decrease of quantity production.)

What does the law of demand say?

There is an inverse relationship between price and quantity demand. (Ex: An increase in the price of a product will result in a decrease of quantity supplied.)

The demand curve represents _____ and the supply curve represents ______

buyers, producers