ECON QUIZ: Supply & Demand

Demand Schedule

A table that lists the quantities of a good a person will buy at each price that may be offered in the market

Market Demand Schedule

Table that lists the quantities of a good demanded by all consumers at each price that may be offered in the market

Demand Curve

Graphical representation of a demand schedule

Income Effect

Change in consumption resulting from a change in real income (More purchasing power + must acknowledge inflation)

Law of Demand

When a good’s price is lower, consumers will buy more of it.

Ceteris Paribus

“All other things held constant” (All factors are equal)

Normal Goods

Goods whose demand increases as consumer income increases

Inferior Goods

Goods whose demand falls as consumer income increases

Complements

Goods that are bought and used together

Substitutes

Goods that are used in place of one another

Unitary Elastic

Demand whose elasticity is exactly = 1

Inelastic

Demand is not sensitive to price changes (<1)

Elastic

Demand that is sensitive to change in price (1>)

Elasticity of Demand

A measure of the way quantity supplied reacts to a change in price

Total Revenue

Defined as the amount of money the company receives by selling its good

Computation of Elasticity of Demand

Percent Change in Quantity Demanded/ Percent Change In Price= Elasticity

Substituiton Effect

When consumers react to a price rise of one good by consuming less of that good and more of another good in its place

What Key Term illustrates this example?: The higher the price of pizza, the fewer slices people will buy

Law of Demand

What Key Term illustrates this example?: Eating salad or tacos instead of pizza when the price of pizza goes up

Substitution Effect

What Key Term illustrates this example?: Buying fewer slices of pizza when rising prices reduce real income

Income Effect

Law of Demand states that a good’s price has on important effect on the amount…

Of the good people will buy

Inverse Relationship

Between quantity demand and price

When a good is deemed as an essential good it may not…

follow the law of demand

Demand Curve Axises

Y-Axis: Price/ X-Axis: Quantity

Shifts on the Demand Curve: Non- Price Determinants

1. Fads, Trends, Celebrity

2. Income (Normal VS. Inferior)

3. Change in price of related goods (Complementary Goods Ex: Movie Tickets & Popcorn)

4. Substitute Good (Ex: Movie Rental VS. Streaming)

Non- Price Determinants

1. Expectations (Expected prices up/down) Ex: Car Prices

2. Market Size

Elasticity of Demand

Use the term elasticity of demand to describe the way people respond to price changes. If you keep buying despite a price increase, your demand is inelastic.

Availability of Substitutes

Few Substitutes= Inelastic- Necessity

Many Substitutes= Elastic- Luxury

New firms will have an ___ to enter the market

Incentive

The tendency of suppliers to offer more of a good at a higher prices is called…

Law of Supply

If the price of a good falls, ___ of a good will be produced

Less

Supply curve shows quantity supplied by ___ producers in a market at different prices

ALL

When percent change in the quantity demanded is exactly equal to percent change in price

Unitary Elastic

Elasticity of supply predicts ___

how suppliers will react to price changes

Industries that cannot easily alter productive have ___ supply (Ex: orange growers cannot increase production quickly when prices rise)

inelastic

A service industry like a barbershop has a ___ supply (Ex: if the price of a haircut rises barber shops can hire more workers quickly)

Elastic

Business can increase ___ by hiring more workers or purchasing more capital

output

The change in output from adding one more worker is the ______ of labor

marginal product

In the beginning, adding each worker will result in increasing ____

marginal returns

At some point, adding each worker will result in diminishing ____

marginal returns

Marginal Cost

Cost of producing one or more unit of a good

Marginal revenue

Revenue gained from producing one more unit of a good

Maximum point of profitability

When marginal cost and revenue are equal

Marginal returns

Measure the extra output or benefit gained by adding one more unit of a variable input (such as labor or raw materials) while keeping other inputs, like factory size or equipment, constant in the short run

What is demand?

Consumers must be willing, able, and ready to buy a good or service at a given time

Variable Costs

a business expense that changes directly and proportionally with the volume of goods or services a company produces

Fixed Cost

a business expense that does not change with the level of production or sales volume within a specific time frame or range of activity

Excise Tax

taxes imposed on certain goods, services, and activities

Subsidies

Subsidies are financial aids provided by governments to support individuals, businesses, or sectors to enhance economic activities