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Demand
The quantity of a good or service that consumers are willing and able to buy at different prices
There must be desire and ability to pay
Demand Schedule
A table showing how much consumers will buy at various prices
Law of Demand
As price falls, quantity demanded rises
when price rises, people would buy less
When price decreases, people would buy more
Reason: Substition effect, income effect, and diminishing marginal utility
Diminishing marginal activity
Each additional unit of a good gives less extra satisfaction than the one before
Example: The first slice of pizza tastes amazing; by the fourth, you full and it won’t taste as good as your first slice
Income effect
When prices fall, consumers feel “richer” and can buy more
When prices rise, they feel poorer and buy less
Substitution effect
When the price of one good rises, people switch to a cheaper alternative
Example: if Coke prices rises, people will buy more Pepsi
demand curve
A graph showing the relationship between price and quantity demanded
Downward sloping because of the law of demand
Determinant of demand
Factors that shift the entire demand curve
T- taste and preferences
R- related goods (substitutes and complements)
I- income (normal and inferior goods)
P- population (number of buyers)
E - expectations (future prices, income)
Normal goods
Goods that people buy more of when income rises
Example: clothing restaurants meals, vacation
Inferior goods
Goods that people buy less of when income rises
Example: ramen noodles, bus rides, thrift stores clothes
Substitute good
Goods that can replace each other
Example: Coke ↔ Pepsi, butter ↔ margarine.
Price ↑ of one → Demand ↑ for the other.
Complementary good
Goods that are used together
Example: Peanut butter + jelly
Price ↑ of one → Demand ↓ for the other.
Change in demand
The whole demand curve shifts ( TRIPE)
Price ↑ of one → Demand ↓ for the other
Example: If income rises (normal good), demand shifts right
Change in quantity demanded
Movement along the same curve caused by a change in price only
Price goes down → move down the curve → buy more.
Supply
The amount of a good or service that producers are willing and able to sell at different prices
As price ↑, quantity supplied ↑ (because producers want more profit).
Supply schedule
A table showing how much producers will supply at different prices
Law of Supply
Direct relationship between price and quantity supplied
When price increases, producers supply more
When price decreases, producer supply less
Supply curve
Slope upward from left to right (↑)
Each point=one price-quantity combo from the supply schedule
Determinant of supply. (Shifters)
Factors that shift the entire supply curve, not just move along it
Resource (input) prices ↑ costs = ↓ supply.
Technology better tech = ↑ supply.
Number of sellers more sellers = ↑ supply.
Taxes and subsidies taxes ↓ supply; subsidies ↑ supply.
Expectations future higher prices = ↓ current supply.
Price of other goods - if producers can make something more profitable, they shift resources
Change in Supply
A shifter of the entire supply curve due to a determinant
Right shift = ↑ supply.
Left shift = ↓ supply.
Example: New machine make production faster → Supply increase
Change in quantity supplied
A movement along the same supply curve caused only by a change in price
Example: If price goes from $10 to $15, producers make more - but the curve doesn’t move
Equilibrium price
The price where quantity demanded = quantity supplied
No surplus or shortage at this point
Equilibrium quantity
The quantity brought and sold at the equilibrium pirce
Surplus
When quantity supplied > quantity demanded (too much product)\
Happened when prices are too high
Fix: Seller lower prices
Shortage
Happens when quantity demanded > quantity supplied.
Means there’s not enough product — consumers want more than what’s available.
Cause: The price is too low.
Fix: Sellers will raise prices until the market reaches equilibrium.
Price Ceiling
A max legal price set BELOW EQUILIBRIUM
Cause SHORTAGES because demand > supply
Example: Rent Control
Price Floor
A minimum legal price set ABOVE EQUILIBRIUM
Causes surpluses because supply > demand
Example: minimum wage