Supply and Demand College Economics

Prices determine…

What is produced, how is produced, and who will buy it

Supply

The quantity of a product a producer will provide (sellers side)

Suppliers want…

The price that will make them the most money

Demand

The quantity of a product that consumers want (buyers side)

Buyers want…

The price that gives them the most value for the least cost

Factors that influence buyers decisions

Taste, $, wealth, credit, necessity

Demand schedule

A chart that shows how much of a product consumers demand at different prices

Law of Demand

As the price of an item increases, less of that item will be purchased and vice versa

Demand Curve

A graph that illustrates a demand schedule

Elasticity of demand

the degree to which changes in price cause change in quantity demanded

Expensive items tend to be…

More elastic. Ex. A 10% change in the price of a car will influence demand greatly whereas a 10% change in the price of salt will not influence demand greatly

Factors that influence elasticity

1) Relationship between income and the cost of the product. The larger the proportion of one’s income the more elastic demand is

2) Substitute products (gasoline → inelastic, butter → elastic)

If income increases but prices stay the same, demand will…

Increase

Substitution effect

If the price of an item increases, and a substitutes price stays the same, demand for the substitute item will increase and demand for the og item will decrease

Complementary Product

A change in product will also cause a change in related items (Ex. Hotdogs, buns, mustard, ect)

Consumers attitude

Taste influence demand

Change in price will not create a new demand curve but…

shift in demand will