Supply and Demand Review

Vocabulary flashcards covering the core concepts of Demand, Supply, changes in Quantity Demanded/Supplied, non-price shifters, and Costs of Production.

Demand

The quantity of a good or service consumers are willing and able to buy at various prices.

Law of Demand

When price increases, quantity demanded decreases; when price decreases, quantity demanded increases.

Demand Schedule

Shows quantity demanded at various prices for one consumer.

Demand Curve

A graph showing the relationship between price and quantities demanded.

Income effect

When the price of an item goes up or down, it is as if your income has changes – causing the quantity demanded to change.

Substitution effect

Consumers switch to cheaper item when prices rise.

Diminishing Marginal Utility

Satisfaction goes down with each unit consumed. So you don’t buy as much.

Change in Quantity Demanded

Caused by change in price.

Change in Demand

Changes happen that aren’t related to the price of the product.

Non-Price Factors of Demand (PINER)

Preference, Income, Number of buyers, Expectations, and Related goods.

Supply

The amount of goods or services that producers are willing and able to offer for sale at various prices.

Law of Supply

As the price of item goes up the quantity supplied increases. As the price of item goes down the quantity decreases.

Supply Schedule

A table showing prices and quantities supplied.

Supply Curve

A graph showing the relationship between price and quantity supplied; slopes upward.

Change in Quantity Supplied

Movement along the curve caused only by a change in price.

Change in Supply

The entire curve shifts due to non-price factors.

Subsidies & Taxes (Change in Supply Factor)

Government actions affecting production.

Costs of Production (Change in Supply Factor)

Taxes, regulations, ingredients, materials, wages, loans.

Efficiency (Change in Supply Factor)

Don’t waste anything.

Number of Sellers (Change in Supply Factor)

Competition.

Technology (Change in Supply Factor)

Supply increases, while costs to produce decreases.

Costs of Production

Determines when a producer will make profit.

Increasing Marginal Returns

Total product and marginal product are increasing.

Diminishing Marginal Returns

Total product is still increasing but by smaller amounts.

Negative Marginal Returns

Total output decreases, marginal product is negative.

Fixed Costs

Costs that do not change with production level (rent, insurance, salaries).

Variable Costs

Costs that change with production level (materials, hourly wages, electricity).

Profit

Total revenue minus total costs.