Supply and Demand Vocabulary

As price increases, quantity demanded goes

down

Input costs are the price of ___ needed to produce a good

resources

These goods are commonly store brands or generics

inferior

Market size changes as the ___ changes

population

Change in demand is caused by a change in the

marketplace

Amount of product a worker can produce in a set amount of time

productivity

The demand curve is a ___ of one consumers’ demand of a product

graph

Products used in place of each other

substitutes

Demand schedule that is a table of all consumers’ behavior

market

set of rules used to control business behavior

regulations

use of scientific methods in production

technology

these goods are typically brand names

normal

the demand curve slopes

downward

changes in quantity demanded does not ___ the quantity

shift

When a supply curve shifts left it means supply

decreases

demand a greater amount of popular items at every price point

consumers

non-essential goods or services

extrine

willingness and ability of producers to offer goods for sale

supply

producers have ___ about the future price of their product

expectations

costs that owners incur regardless of the amount produced

fixed

Tax on production or sale for a specific item

excise

More producers lead to increased ___

competition

Goods that are used together ___

complements

slope of supply curves

upward

A company’s income from selling its product. Price X Quantity

Total Revenue

Sum of fixed costs and variable costs

Total cost

Goods demanded more when income rises

normal goods

Goods that are used together

complements

The willingness to buy a good and ability to pay for it

demand

The price at which quantity demanded by consumers is EQUAL TO the quantity supplied by producers

equilibrium price

What is a shortage?

when demand exceeds supply

A surplus happens when

Quantity supplied > Quantity demanded

What describes equilibrium price?

The place where the supply and demand curves cross

What is price ceiling

The maximum price that a government sets for a product

Who does the price floor usually benefit

producers

Measures how responsive consumers are to price changes

elasticity of demand

the ease of changing production to respond to price change

Elasticity of supply chain

The willingness and ability of producers to offer goods for sale

Supply

Products used in place of each other

substitutes

What is an Excise Tax

Taxes that are charged on the purchase of specific goods (cigarettes)

What are inferior gooods

Goods for when which the demand falls when income rises

The slope of the demand curve is

downward to the right

the appearance of a supply curve is

an upward slope, bottom left to top right

How government controls business behavior through rules or laws

regulations

What is marginal cost

the cost adding by producing one additional unit of a product/service

The law of supply states that when price increases

quantity supplied increases

What is the law of demand

• Lower the price, higher quantity of demand

• Higher price, low quantity demanded

What will happen to the demand curve if the price of a product increase

no shift

Elasticity of Demand is a measure of

the responsiveness of buyers to price changes

As prices fall..(the law of demand)

quantity demanded goes up

as prices increase…(the law of demand)

quantity demanded goes down

the concept of demand is demonstrated every time you

buy something

demand curve

downward sloping curve

demand schedule

table of one consumer’s behavior

market demand schedule

table of all consumers’ behavior

demand curve

consumers demand of a product

market demand curve

all consumers demand of a product

change in quantity demanded

• results from a change in price

• movement along the demand curve; shown by new points on the curve

• DOES NOT shift (move) the curve

change in demand (shift in demand)

• change in demand is caused by a change in the marketplace

• prompts people to buy different amounts at every price

• also called shift in demand

• Six factors can cause change in demand

Law of diminishing marginal utility (What factors affect demand?)

marginal benefit of each additional unit declines as each unit is used

Income effect (What factors affect demand?)

quantity that people buy changes as their income changes

Substitution effect (What factors affect demand?)

amount people buy changes as they buy substitute products

(Change in demand factor: Income effect)

• A person’s ability to buy goods changes as his or her income changes

• As the income of most consumers in market change, so does total demand

Inferior goods

store brand/generic

normal goods

brand name

(Change in demand factor: Market Size)

• As number of consumers in an area changes, so does market size

• Demand for most goods changes as market size changes

Rise in population leads to

increased demand

decrease in population leads to

decrease demand

(Change in demand factor: Consumer tastes)

• products gain and lose popularity

• consumers demand a greater amount of popular items at every price

• sellers advertise to create demand for products

(Change in demand factor: consumer expectations)

• expectations about future price of items affect individual behavior (end of model year vehicle sales)

  • Expectations of consumers in a market affect demand

(Change in demand factor: substitutes)

products used in place of each other

(Change in demand factor: complements)

goods that are used together (example: peanut butter and jelly)

Change in demand factor (6):

1. Income effect

2. Market Size

3. Consumer tastes

4. Consumer Expectations

5. Substitutes

6. Complements

What is Elasticity of Demand?

Buying habits affected by type of product and importance to consumer

Elastic

goods with substitutes

inelastic

needed goods with substitutes

In general, goods with elastic demand are

luxury items or have many substitutes

In general with inelastic demand are

necessities or have few or no substitutes

3 factors affect elasticity of demand

1. availability of substitutes

2. proportion of income spent on goods or service

3. whether product is necessity of luxury

Total revenue =

P (price) X Q (quantity sold)

If total revenue increases after price drops,

elastic

if total revenue decreases after price drops

inelastic

Change in Quantity (demanded)

• movements along the curve; DOES NOT shift the curve

  • Change in price

Change in demand (shift in demand)

• Shifts the demand curve

  • 6 factors: income, market size, consumer tastes, consumer expectations, substitutes, complements

Supply

is the willingness and ability of producers to offer goods and services for sale

As prices fall…(law of supply)

quantity supplied falls

As prices rise…(law of supply)

quantity supplied rises

Supply schedule

a table that shows the amount of product an individual producer is wiling, able to offer to each price

market supply schedule

amount of products all producers are wiling, able to offer at each price

supply curve

shows data from supply schedule in graph form

market supply curve

shows data from market supply schedule in graph form

Supply curves of all producers follow the law of supply

• producers will provide more product at higher prices although it costs more to produce more

• reason: higher prices signal the potential for higher profits

• Supply curves slope upward

Change in quantity supplied

• rise or fall in amount for sale because of change in price

• movement ALONG the supply curve; shown by new points on the curve

  • DOES NOT shift the curve

Change in Supply (shift in supply)

• producers offer different amounts at every price

• 6 factors can cause a change in supply

• SHIFTS the supply curve left or right

Changes in Quantity supplied

• movement to right (up) means an increase in price and quantity supplied

• movement to left (down) means a decrease in price and quantity supplied

Changes in Supply

shift to the left: decrease in supply

shift to the right: increase in supply

Changes in Supply Factor: Input costs

Input costs: price of resources needed to produce a good or service

• price of resource increase costs increase

• price of resource decrease costs decrease

Changes in Supply Factor: Labor productivity

Labor productivity - the amount of product a workers can produce in a set amount of time

• increase productivity, decrease in production costs; supply increase

• specialization - producer can make more goods at lower cost

• better-trained workers produce more in less time; decrease costs

Changes in Supply Factor: Technology

Technology - the use of scientific methods, discoveries in production

• new products/manufacturing techniques

• manufacturers make goods more efficiently

• workers are more productive

Changes in Supply Factor: Government Acion

Excise tax: tax on production or sale of a specific good or service

• placed on items governments wants to discourage use of

• taxes increase producers’ costs; decrease in supply

Regulation: set of rules/laws designed to control business behavior