Determinants of Supply & Demand (AP Microeconomics)

Tastes of Consumers

Consumer preferences and tastes that influence demand; more desirable products lead to increased demand.

Buyers (Amount)

The number of buyers in the market; more buyers lead to increased demand, while fewer buyers lead to decreased demand.

Price of Related Goods

The influence of substitute and complementary goods on the demand of a product.

Substitutes

Goods that can be used in place of each other; a decrease in the price of a substitute leads to decreased demand for the original good.

Complements

Goods that are often consumed together; a decrease in the price of a complement leads to increased demand for the original good.

Income of Consumers

The effect of consumer income on demand; as income rises, demand for normal goods increases and for inferior goods decreases.

Expectations of Future Prices

Consumer expectations about future prices affecting current demand; expectations of rising prices may increase current demand.

Taxes and Subsidies

Taxes decrease supply when higher, while subsidies increase supply when higher.

Resource Costs

Costs of resources like labor or raw materials; an increase in resource costs can decrease supply.

Number of Sellers

The amount of sellers in the market; more sellers increase supply and fewer sellers decrease supply.

Technology

Advancements that increase productivity and can lead to increased supply.

What happens to demand if the price of a substitute good falls?

Demand for the original good decreases.

If consumers expect future prices to fall, what is likely to happen to current demand?

Current demand may decrease.

What are normal goods?

Goods for which demand increases as consumer income rises.

What are inferior goods?

Goods for which demand decreases as consumer income rises.

How do taxes affect supply?

Higher taxes on production decrease supply, while lower taxes increase supply.

What effect do technological advancements have on supply?

They can increase productivity, leading to increased supply.

What influences supply based on the number of sellers?

More sellers in the market increase supply, whereas fewer sellers decrease supply.

Demand

The willingness and ability of consumers to purchase a good or service at various prices.

Factors that affect demand

tastes of consumers, number of buyers, price of related goods, income of consumers, expectations of future prices.

Supply

The total amount of a good or service that producers are willing and able to sell at different prices.

Law of Demand

As the price of a good decreases, the quantity demanded increases and vice versa.

Law of Supply

As the price of a good increases, the quantity supplied also increases and vice versa.

Equilibrium price

The price at which the quantity demanded equals the quantity supplied.

Consumer preferences

It directly impacts how much of a good is desired at various price points.

normal

Demand for (normal or inferior) goods increases as consumer income rises.

inferior

Demand for (normal or inferior) goods decreases as consumer income rises.