Econ Test Supply and Demand

Supply

Quantity of a good producers are willing to sell at various prices

Law of Supply

Higher prices lead to more supply

Supply Schedule

A table showing price and quantity supplied

Supply Curve

A graph representing the supply schedule

Increasing Returns

Output increases faster than input

Diminishing Returns

Output increases slower than input

Fixed Cost

Costs that remain constant regardless of production level

Variable Cost

Costs that change with production level

Total Cost

The sum of fixed and variable costs

Total Revenue

The total money earned from selling goods

Change in Quantity Supplied

Movement along the supply curve due to a price change

Labor Productivity

Output produced per unit of labor input

Equilibrium Price

The price at which supply equals demand

Disequilibrium

A situation where supply and demand aren't balanced

Incentive

A motivator influencing economic decisions

Rationing

Allocating limited goods when demand exceeds supply

Price Floor

A minimum price set by the government

Price Ceiling

A maximum price set by the government

Normal Goods

Goods with higher demand as income rises

Inferior Goods

Goods with lower demand as income rises

Surplus

When supply exceeds demand at a given price

Shortage

When demand exceeds supply at a given price

Consumer Preferences

Tastes and choices that influence purchases

Minimum Wage

The lowest legal wage employers can pay

Elasticity of Supply

How supply responds to price changes

Changes in Demand (Shifters)?

Changes in income, preferences, related goods' prices, expectations, and number of consumers.

Changes in Supply (Shifters)?

Changes in input costs, technology, number of sellers, expectations, and government policies.

What are the Advantages of Price?

Price allocates resources, balances supply and demand, and signals production incentives.

What are the Cost of Production?

The total expenses to produce goods, including fixed and variable costs.

Law of Demand: Price goes up, price goes down - impacts

Higher prices decrease demand; lower prices increase demand.

Demand goes up, Demand goes down - impacts

Increased demand raises price and quantity supplied; decreased demand lowers both.

Demand Curve: Price and demand relationship, causes of shifts

Price and demand are inversely related. Shifts occur due to income, preferences, related goods' prices, or number of consumers. Right shift = increase in demand, left shift = decrease.

Elastic: Price goes up, price goes down - impacts

For elastic goods, price increases cause demand to drop significantly; price decreases cause demand to rise significantly.

Inelastic: Price goes up, price goes down - impacts

For inelastic goods, price changes have little effect on demand.

Income: Income increase, income decrease - impacts

Higher income increases demand for normal goods; lower income decreases it. For inferior goods, demand increases with lower income.

Substitutes: Price increases on a good - impacts

Higher price of one good increases demand for its substitute.

Complementary Goods: Price for a complementary good increases - impact

Higher price of a complement decreases demand for the related good.

Law of Diminishing Marginal Utility: Examples

Each additional unit consumed provides less satisfaction, e.g., the more pizza you eat, the less enjoyable each slice becomes.

Law of Supply: Price goes up, price goes down - impacts

Higher prices increase supply; lower prices decrease supply.

Supply goes up, Supply goes down - impacts

More supply lowers price and increases demand; less supply raises price and decreases demand.

Supply Curve: Price and supply relationship, causes of shifts

Price and supply are directly related. Shifts occur due to input costs, technology, and other factors. Right shift = increase in supply, left shift = decrease.

Equilibrium: Price above, price below, perfect equilibrium - impacts

Price above equilibrium = surplus; price below = shortage; equilibrium = balanced supply and demand.

How do you calculate a shortage from a supply and demand graph?

Subtract supply from demand at the price point.

How do you calculate a surplus from a supply and demand graph?

Subtract demand from supply at the price po