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Demand
Schedule of the different quantities demanded that consumers are willing and able to buy at different price levels.
Quantity Demanded
Number of units the consumers are willing and able to buy at a specific price.
Law of Demand
As price increases, quantity demanded decreases; As price decreases, quantity demanded increases.
Causes of Shifts in the Demand Curve
Change in consumer tastes
Change in the price of related goods (substitute and complementary goods)
Change in consumer income (normal vs inferior goods)
Change in the number of buyers
Change in consumer expectations
Results of Shifts in Demand
Increase in demand shifts the demand curve to the right, which causes equilibrium prices and equilibrium quantity to increase.
A decrease in demand shifts the demand curve to the left, which casues equilibrium prices and equilibrium quantity to decrease.
Normal goods
Good that you buy more of as your income increases and decreases.
Inferior goods
Good that you buy less of as your income increases and decreases.
Supply
Schedule of the different quantities supplied that producers are willing and able to sell at different price levels.
Quantity Supplied
The number of units the producers are willing and able to sell at a specific price.
Law of Supply
As price increases, quantity supplied increases; As price decreases, quantity supplied decreases.
Causes of Shifts in the Supply Curve
Changes in the cost of inputs
Changes in the price of related goods (substitute and complementary)
Changes in producer expectations
Changes in the number of producers
Changes in Technology
Results of Shifts in Supply
An increase in supply shifts the supply curve to the right, which causes equilibrium prices to decrease and equilibrium quantity to increase.
A decrease in supply shifts the supply curve to the left, which causes equilibrium prices to increase and equilibrium quantity to decrease.
Equilibrium
Price level where QS=QD
Shortage
Caused when price level is too low, making quantity supplied less than quantity demanded.
Surplus
Caused when price level is too high, making quantity supplied greater than quantity demanded.
Price Ceiling
Legal maximum set on a price by an artificial source. To be effect, the price must be set below equilibrium. Effects of these are shortages, rationing, black markets, and low product quality.
Price Floor
Legal minimum set on a price by an artificial source. To be effective, the price must be set above equilibrium. Effects of a price floor or surpluses, wasted resources, the government purchasing the excess and low product quality.
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