Supply and Demand Test

Law of Demand

As prices increase, quantity demanded decreases

Law of Supply

As prices increase, quantity supplied increases

Elastic

Responsive to a change in price

Inelastic

Responds slightly or not at all to change in price

Market Equilibrium

Point where buyers and sellers agree

Price floor

a minimum price consumers are required to pay for a good or service

Price ceiling

a maximum price consumers may be required to pay for a good or service

Changes in income

An increase in income increases people´s demand for a good or service. A growing economy; enhances income for more people.

Changes in number of consumers

A change in the number of consumers can cause market demand to shift. Ski town in winter vs summer.

Changes in consumer taste and preferences

Consumers do not necessarily buy the same product year after year. Trends tend to influence our wants, changing the demand.

Changes in consumer expectations

Prices don´t have to rise or fall to cause consumers to change their behavior. Item discounted next week.

Changes in the price of substitute goods

A change in the price of one product in a pair of substitute goods can cause the demand curve for the other good to shift. An increase in price for an items used to produced a good/service, the demand for its substitute may increase as consumers seek cheaper alternatives.

Changes in the price of complementary goods

A complementary good is a product that is consumed along with another product. Price changes can influence demand.

Changes in the costs of inputs

Any change in the cost factor of production - land, labor, or capital - will result in a change in the market supply of production.

Changes in the number of producers

An increase in the number of sellers supplying a good or a service. Apple product

Changes from natural disasters, etc.

Natural disasters such as hurricanes, floods, and wildfires can decrease supply

Changes in technology

Technological advances can reduce the amount of labor needed to produce a good. Manufacturing of cars.

Changes in producer expectations

Producers often make supply decisions based on the expectation that prices will rise or fall

Changes in government policy

One is to offer producers a subsidy, which is a cash payment aimed at helping them. Governments can also use excise taxes to reduce the supply of a certain good. Changes in tax rates and government spending can be implemented to address economic issues like inflation or unemployment.