Econ Unit 2 - Review of Supply and Demand

What determines demand?

Price, income, and price of related goods/services

Demand

demand encompasses quantity demanded. Price does NOT change demand. Demand refers to the relationship between quantity demanded and price.

Quantity Demanded

Quantity demanded refers to the amount of goods/services consumers are willing to purchase. Price DOES change quantity demanded. When Quantity demanded changes we move along the demand curve.

Law of Demand

Refers to the inverse relationship between price and quantity demanded. (6,7) motion

Demand changes when…

the relationship between quantity demanded and price change.

What changes and shifts demand?

Income, Complement goods, and substitute goods

When the price of a compliment increases…

I will buy less of the compliment and more of the original good.

When the price of a compliment decreases…

I will buy more of the compliment and less of the original good.

If the price of a substitute increases…

I will buy less of the substitute and more of the original good.

If the price of a substitute decreases…

I will buy More of the substitute and less of the original good.

What causes a shift in Demand?

Income, Complement goods, and substitute goods. NOT price

What causes movement along the demand curve?

A change in the price of the good or in quantity demanded. A change in price changes the quantity demanded.

What would have to change to cause me to buy more of a good at the same price?

Income

Demand vs Supply

Demand is about the consumer while supply is about the producer

Demand and Supply are the same in how

Demand encompasses quantity demanded and Supply encompasses quantity supplied. Price changes Quantity Supplied and Quantity Demanded while price does NOT change Demand and Supply.

Law of Supply

There is a positive relationship between quantity supplied and price

What would have to change to cause me to sell more or less of a good at the same price?

Cost of Production, also the cost of production causes a shift in the supply curve

What is included in cost of production?

Cost of labor (workers) and cost of capital (machines)

When the cost of production goes up…

Production goes down and the supply curve shifts to the left. Inverse relationship (6,7)

When the cost of production goes down…

production goes up and the supply curve shifts to the right. (Inverse relationship (6,7)

Equilibrium price

price where the quantity demanded equals the quantity supplied

Equilibrium Quantity

the amount of the good that is bought and sold at the equilibrium price

Excess supply causes…

firms to lower prices so quantity demanded increases

How to read excess supply on a graph?

Count the spaces between the supply curve and the demand curve at the top part of the graph

Excess Demand causes…

firms to raise their prices so quantity demanded decreases

How to read excess demand on a graph?

Count the spaces between the supply curve and demand curve at the bottom half of the graph

When demand increases which way does the curve shift?

The demand curve shifts to the right

When demand decreases which way does the curve shift?

the demand curve shifts to the right

When supply increases which way does the curve shift?

The supply curve shifts to the right

When Supply decreases which way does the curve shift?

The supply curve shifts to the left

What causes movement along the supply curve?

A change in price which changes the quantity supplied. So change in price or quantity supplied