Ch.4-6 Demand, Supply, and Prices Study Guide

Econ

What is a Demand?

To desire some good and service to be able to pay for it.

What does the Law of Demand state?

When the price falls, consumers demand more of it. When the price rises, we will demand less.

What are the 6 factors of demand?

1. Income 2. Market Size 3. Consumer Taste 4. Consumer Expectations 5. Substitute Goods 6. Complementary Goods

What is the elasticity of demand?

To describe how consumers respond to changed prices.

What is the difference between an elastic and an inelastic item?

Elastic items can have a price that costs more, while inelastic items have prices below one dollar.

What is the Law of Supply?

When the price falls, the quantity supplied also falls.

How do we find Profit?

Profit = Total revenue - total cost.

How do we find Total Revenue?

Total products x Price.

What are the 6 factors that affect supply?

1. Input Costs 2. Labor Productivity 3. Technology 4. Government Actions 5. Producer Expectations 6. Number of producers

What is equilibrium price?

The price at which the quantity of product demanded by consumers equals the quantity supplied.

What is a shortage?

The result of quantity demanded being greater than quantity supplied.

What is a surplus?

The result of quantity supplied being greater than quantity demanded.

What is the equilibrium price?

$1.40.

Where on the graph is there a shortage?

$1.20.

Where on the graph is there a surplus?

$1.60.

What happens to equilibrium price if demand decreases or supply increases?

The equilibrium price will decrease.

What happens to equilibrium price if demand increases or supply decreases?

The equilibrium price will increase.

What are the four characteristics of the price system?

1 . Neutrality 2. Market Driven 3. Flexibility 4. Efficient

What is the price ceiling?

The legal maximum price that sellers may charge for a product.

What is the price floor?

The legal minimum price that buyers must pay for a product.