econ supply and demand review

demand

the desire to own something and the ability to pay for it

supply

the amount of a good or service that’s available

law of demand

when a good’s price is lower, the quantity demanded is greater and when a good's price is higher, the quantity demanded is lower

law of supply

producers offer more of a good or service as its price increases and less as its price falls

demand elasticity

how much quantity demand changes when price changes

elastic demand

goods with many substitutes, require a large portion of your income, and are luxuries

inelastic demand

goods with few substitutes, require a small portion of your income, and are necessities

supply elasticity

how much quantity supplied changes when price changes

elastic supply

goods that take a short time to produce, are inexpensive to produce, and use few, easy to get resources

inelastic supply

goods that take a long time to produce, are expensive to produce, and use many, hard to get resources

cause of change in quantity demanded/supplied

price change

changes in quantity demanded/supplied on graph

represented as a movement along an existing curve

causes of a change in demand

anything other than price change

change in demand on graph

represented by an entire shift of the demand curve, left or right

complementary goods

the price of one good will affect the demand for goods that go with it

substitute goods

the price of one good will affect the demand for goods that can replace it

consumer income

more income equals more demand

consumer taste/preferences

demand changes based on fads and trends

consumer expectations

consumer demand changes based on what consumers expect to happen

causes of a change in supply

anything other than price change

change in supply on graph

represented by a shift of the entire supply curve, left or right

cost of resources/production

the cost of inputs will affect supply like more expensive resources equals less supply

taxes, subsidies, and government regulation

government policies affect the cost of doing business

substitute goods

the price of alternative goods a factory can make will affect supply

future expectations

supply changes today based on what producers expect to happen tomorrow

competition or number of sellers

the number of businesses in the market will affect total supply

equilibrium price and quantity

occurs where the supply of a product equals the consumer demand

equilibrium price and quantity on graph

represented by the intersection point where the supply and demand curves cross

causes of shortage

exists when the quantity demanded in a market is more than the quantity supplied

determining a shortage on graph

subtract the quantity supplied from the quantity demanded at a price level below the equilibrium price

determining a surplus on graph

½ times the equilibrium quantity times the demand intercept minus the market price

price ceiling

the maximum price that can be legally charged for a good or service (shortage)

price floor

the minimum price the government can set that must be paid for a good or service (surplus)

rationing

the basis of central planning which a central authority makes basic economic decisions for a society and a system of allocating goods and services using a criteria other than price

black market

allow consumers to pay more so they can buy a product when rationing makes it otherwise unavailable

minimum wage

laws that set the lowest hourly wage an employer can pay a worker, acting as a price floor in the labor market

profit

the difference between a firms total revenue and its total costs