Law of Demand and Supply

These flashcards cover the key concepts regarding the Law of Demand and Supply, elasticity, and other related economic principles.

What is the Law of Demand?

Demand varies inversely with price.

What does the demand curve slope look like?

Demand curves always have a negative slope.

What causes a change in quantity demanded?

Price changes cause the point along the demand curve to move.

What happens to the demand curve when external factors change?

The curve shifts to the left or right.

What does a leftward shift in the demand curve indicate?

A decrease in demand.

What factors shift demand?

1. Consumer Income 2. Future Expectations 3. Population 4. Consumer Preferences 5. Price of Complementary Goods 6. Price of Substitute Goods.

What is the Law of Diminishing Marginal Utility?

The satisfaction gained from a product declines with each additional unit acquired and/or consumed.

What is price elasticity?

How much consumers respond to a change in price.

What type of demand is indicated by a big change in quantity demanded?

Elastic Demand.

What factors influence elasticity of demand?

1. Availability of Substitutes 2. Size of Price Tag 3. Necessity vs. Luxury 4. Time Horizon.

What is the Law of Supply?

Supply varies directly with price.

What is the shape of the supply curve?

Supply curves always have a positive slope.

What causes a change in quantity supplied?

Price changes cause the point along the supply curve to move.

What factors shift supply?

1. Cost of Inputs 2. Future Expectations 3. Population of Sellers 4. Government Influence 5. Technology 6. Productivity/Efficiency.

What is the Law of Diminishing Marginal Returns?

The level of output from one unit of production declines with each additional unit acquired and/or consumed.

What is elastic supply?

A significant change in quantity supplied in response to price changes.

What is inelastic supply?

A small change in quantity supplied in response to price changes.

How do supply and demand interact regarding price?

As price increases, supply increases, and conversely, as price decreases, demand increases.

What describes the relationship of price and consumer purchases?

When stuff costs less, people buy more; when stuff costs more, people buy less.