Law of Demand and Supply

Flashcards covering the key concepts of the Law of Demand and Supply, including definitions, laws, and factors affecting demand and supply.

Law of Demand

Demand varies inversely with price.

Demand Curve

Graphical representation where price is on the y-axis and quantity on the x-axis, always with a negative slope.

Change in Quantity Demanded

Occurs when there is a change in price, moving along the demand curve.

Change in Demand

Occurs due to external factors affecting the entire demand curve, shifting it left or right.

Factors that shift demand

1. Consumer Income 2. Future Expectations 3. Population 4. Consumer Preferences 5. Price of Complementary Goods 6. Price of Substitute Goods

Law of Diminishing Marginal Utility

Satisfaction gained from a product declines with each additional unit consumed.

Price Elasticity

How much consumers respond to a change in price.

Elastic Demand

Demand that changes significantly with price changes.

Inelastic Demand

Demand that changes little with price changes.

Causes of Elasticity (Elastic and Inelastic)

1. Number of Substitutes 2. Size of Price Tag 3. Necessity vs. Luxury 4. Time Horizon

Law of Supply

Supply varies directly with price; as price increases, supply also increases.

Change in Quantity Supplied

Occurs with changes in price, moving along the supply curve.

Change in Supply

Occurs when external factors shift the entire supply curve left or right.

Factors that shift supply

1. Cost of Inputs 2. Future Expectations 3. Population of Sellers 4. Government Influence 5. Technology 6. Productivity/Efficiency

Law of Diminishing Marginal Returns

Level of output from one production unit declines with each additional unit.

Price Elasticity of Supply

How much sellers respond to a change in price.

Elastic Supply

Supply that changes significantly with price changes.

Inelastic Supply

Supply that changes little with price changes.

Supply vs Demand Differences

Demand refers to what consumers want while supply refers to what sellers make available.