ECON demand and supply WEEK TWO

demand curve

shows the quantity demanded and different prices

quantity demanded

the quantity that buyers are willing and able to buy at a particular price

demand vs quantity demanded?

demand refers to the entire curve

quantity demand refers to a point on the demand curve

where do price and quantity go on the graph

price goes on the y-axis

quantity goes on the x-axis

law of demand

ceteris paribus, a rise in the price of a good or service will decrease the quantity demanded of that good or service

utility

how much happiness or satisfaction you get from something

marginal utility

extra happiness you get from consuming ONE MORE unit of something

diminishing marginal utility

the more you have of something, the less extra happiness you get from each additional one

market demand

everyone’s demand added together

• you want 2 pizzas, friend wants 3, mom wants 1, 2+3+1 = 6

• so market demand is 6 pizzas

change in price is what

causes movement along the demand curve

what shifts demand curve

population, expectations, seasons, tastes, income

normal goods

demand increases when income increases

inferior goods

demand decreases when income increases

substitutes in consumption

if two are substitutes when the price of one goes down there will be a decrease in demand of the other good

complements in consumption

if two goods are complements a decrease in the price of one good leads to an increase in the demand of the other good

supply curve

a function that shows the quantity supplied at different prices

quantity supplied

the quantity that suppliers are willing and able to produce and sell at a particular price

law of supply

a rise in the price of a good or service will increase the quantity supplied of that good or service

marginal cost

how much extra does it cost to produce one more unit

variable costs

costs that change depending on how much you produce

fixed cost

costs that stay the same regardless of how much you produce