supply and demand

Demand

amount of a good or service that consumers want to buy

Who is demand concerned with

buyers

Supply

amount of a good or service thats available in the market

Who is supply concerned with

sellers

What does supply and demand determine

prices in the marketplace

Two types of goods and services

Normal and inferior goods

Normal goods

items people tend to buy more of when their income increases. This is true of most goods and services (on brand items).

What are inferior goods?

Items people purchase more of when their income decreases.

What is a characteristic of inferior goods?

They tend to be low-cost options for saving money.

examples of normal goods

new cars

coca-cola/pepsi

televisions

clothes

examples of inferior goods

ramen noodles

frozen dinners

bus transportation

used clothes

related goods

subsitute and complimentary goods

substitute goods

items that may replace each other when used or consumed

subsitute goods examples

butter…margarine

mcdonalds…burger king

complimentary goods

items thar are almost always used or consumed together

complimentary goods examples

hot dogs…hot dog buns

toothbrush…toothpaste

peanut butter…jelly

economic time frames

short run and long run

short run

period of time that is NOT long enough to allow consumers or producers enough time to adjust to all changes in an economic situation

long run

period of time that is long enough for people to adjust to all changes in an economic situation

in a market graph where is the price and quantity

price: y axis

quantity: x axis

what does the curve do in the law of demand

demand curve goes down

law of demand

consumers buy more of a good when its price decreases and less when its price increases

incentive for consumers

lower prices

what deters consumers

higher prices for the same item

two ways demand can change

quantity demand and demand

change in quantity demand

a change along the demand curve that shows a change in the quantity of the product purchased in response to a change in price of market good

what changes the demand in a change in quantity demand

price of market good

change in demand

a shift of the entire demand curve either left or right, more or less of a product will be demanded at every price

what changes the demand in change in demand

anything other than price, an outside force

events that increase demand

1. consumers enter the market

2. consumers have more money

3. consumers expect good things to happen in the future

4. product is popular

5. price of a subsitute good increases

6. price of a complementary good decreases

events that decrease demand

1. consumers leave the market

2. consumers have less money

3. consumers expect bad things to happen in the future

4. product goes out of style

5. price of a substitute good decreases

6. price of a complimentary good increases

in the peanut butter market, if the price of jelly goes up will peanut butter demand increase or decrease and why

peanut butter demand will decrease due to the price of a complimentary good increasing (jelly)

in the coca cola market, if pepsi prices go down will coca cola demand increase or decrease and why

coca cola demand will go down because of a decrease in a substitute good price (pepsi)

Law of supply

producers supply/produce more of a good as its price increases and less as its price decreases

what is an incentive for suppliers

higher prices

what deters suppliers

lower prices for the same item

change in quantity supplied

change along the supply curve, only price of makret good changes

change in supply

shift of entire suppluy curve either left or right due to other factors other than price of market good

factors that increase supply

-cost of production decreases

-technology improves

-sellers expect good things to happen in the future

-more sellers enter the market

-opportunities in different markets are bad

-favorable natural events

factors that decrease supply

-cost of production increase

-technology becomes outdated

-sellers expect bad things to happen in the future

-sellers leave the market

-opportunities in different markets are good

-unfavorable natural events

when is equillibrium reached?

when quantity demanded equals quantity supplied

what does equillibrium cause in the marketplace

all buyers get want they want and all sellers get want they want without any leftover goods (market clearing price)

market clearing price

equilibrium price

how do markets naturally move towards equillibrium

competition and availability of information

what happens when prices are above equillibrium

there is more supply than demand

when supply exceeds demand

there is a surplus

what will sellers do to get rid of a surplus

lower prices

what happens when prices are below equillibrium

there is less supply than demand

when supply is less than demand

there is a shortage

when do sellers realize they can make more money

when there are so many buyers, they will increase price

when demand increases

price increases

quantity increases

when demand decreases

price decreases

quantity decreases

when supply increases

price decreases

quantity increases

when supply decreases

price increases

quantity decreases

when demand increases and supply increases

price is unknown and quantity increases

when demand increases and supply decreases

Price increases and quantity is unknown

when demand decreases and supply decreases

price is unknown and quantity decreases

when demand decreases and supply increases

price decreases, quantity unknown

price ceiling

government mandated MAXIMUM price that sellers are allowed to charge in the marketplace

price floor

government mandated MINIMUM price buyers are required to pay

what price control lowers price

price ceiling

what price control raises price

price floor

what price control is supposed to help consumers

price ceiling (lower prices)

what price control is supposed to help producers

price floors (higher prices being charged)

what price control is ABOVE equillibrium

price floor

what price control is BELOW equillibrium

price ceiling