Demand and Supply - Lecture Notes Flashcards

Flashcards covering key concepts from the notes on demand, supply, determinants, shifts, equilibrium, and market mechanisms.

What is demand?

The quantity of goods and services buyers are willing and able to buy.

What does the Law of Demand state (ceteris paribus)?

As price increases, quantity demanded decreases, holding all other factors constant.

What does the term ceteris paribus mean and who defined it in the notes?

Latin for 'all else being equal'; it means no independent variables change when analyzing demand or supply.

Differentiate between Demand and Quantity Demanded.

Demand is the entire relationship between price and quantity demanded at each price; quantity demanded is the specific amount buyers are willing to purchase at a particular price, holding other factors constant.

What are the five non-price determinants of demand listed in the notes?

Income, price of related goods and services, taste and preference, expectation on future prices, and changes in population.

What are normal goods?

Goods whose demand increases as income increases (examples: jewelry, fine dining, hotels).

What are inferior goods?

Goods whose demand decreases as income increases; examples include cheaper items like noodles, sardines, or dried goods.

What are substitutes in the context of demand?

Goods that can replace another; when the price of one rises, demand for the substitute tends to rise (e.g., coffee and tea; chicken vs. beef or pork).

What are complements in the context of demand?

Goods that go hand in hand; when the price of one increases, the demand for its complement tends to decrease (e.g., coffee and creamer).

How does taste and preference affect demand?

As tastes and preferences rise, demand for the product increases; if preferences fall, demand decreases.

What is panic buying and its relation to future prices?

Buying beyond immediate needs due to the expectation that prices will rise, which increases current demand.

How does population affect demand?

Higher population generally increases demand; lower population reduces demand.

What is supply?

The quantity of goods or services sellers are willing and able to sell at different prices.

What does the Law of Supply state (ceteris paribus)?

As price increases, quantity supplied increases, holding all else constant.

List the seven non-price determinants of supply mentioned in the notes.

Input price, price of related goods and services, expectation on future prices, technology, government regulations, number of suppliers, and unexpected calamities or natural disasters.

What is the effect of higher input prices on supply?

Higher input prices typically raise production costs, leading to a lower quantity supplied (and vice versa).

How do substitutes and complements of related goods affect supply according to the notes?

For substitutes, if the price of one good increases, the supply of the other may increase; for complements, if the price of one increases, the supply of the other may decrease.

What is 'hoarding' in the context of future prices and supply?

Producers refrain from selling now because they expect higher prices in the future; conversely, if prices are expected to fall, they may supply more now.

What is the effect of technological progress on supply?

Technological advancements increase supply by making production more efficient.

How do government regulations and taxes affect supply? And what about subsidies?

Higher regulations or taxes decrease supply; subsidies or tax exemptions increase supply.

What is the effect of the number of sellers on supply?

More sellers increase supply; fewer sellers decrease supply.

What is the effect of unexpected calamities or natural disasters on supply?

They decrease supply by disrupting production and distribution.

What is market equilibrium?

A point where quantity demanded equals quantity supplied; the market clears.

What is the Market Mechanism and the role of price signals?

A market is a mechanism where buyers and sellers interact to determine price and quantity; price serves as a signal to producers and consumers.

What are examples of normal goods and their income-related behavior from the notes (luxury-normal vs basic-normal)?

Luxury-normal: demand rises with income (e.g., meat in Jose’s example); basic-normal: demand rises with income but remains essential (e.g., rice).

What are examples of inferior goods given in the notes?

Goods whose demand rises when income is low, such as noodles, sardines, or dried goods; as income increases, demand for these falls.

What is the difference between a movement along the demand curve and a shift of the demand curve?

Movement along the demand curve is caused by a change in price; a shift occurs due to non-price determinants like income, tastes, or prices of related goods.

What causes a shift in the supply curve?

Non-price determinants such as changes in input prices, technology, taxes and subsidies, number of sellers, and unexpected calamities.

What are the eight scenarios for analyzing equilibrium changes listed in the notes?

1) supply up, demand constant; 2) supply down, demand constant; 3) demand up, supply constant; 4) demand down, supply constant; 5) both supply and demand increase; 6) both decrease; 7) supply up, demand down; 8) supply down, demand up.

Why are prices considered signals in the market mechanism?

Prices convey information about scarcity and relative value, guiding buyers and sellers in decisions about production and consumption.