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supply and demand
What is the most basic law of economics
Microeconomics
A study of what influences economic behavior of individual units of an economy, prices, and the buying and selling of goods and services
demand
The desire to own something AND the ability to pay for it
How is demand graphed
By market demand schedule:
which show an inverse (opposite) relationship between price & demand
Which illustrate “aggregate (everyone) demand”
Or with demand curves, which always slope downward
Why is demand quantified?
helps businesses determine “price points” to maximize revenue
Higher prices don’t always=higher revenue!
substitution effect
a rise in prices causes consumers to demand less of one item and more of another Ex: gatorade vs. powerade
income effect
+/- in income an affect demand
complementary demand
goods and services whose demand rises and falls in tandem with another item
normal goods
demand rises for these when an economy improves and/or incomes increase!
inferior goods
Demand rises when an economy declines/incomes drop
price elasticity
measures what effect a change in price has on demand (2 types!)
elastic demand
price increase=drop in demand
wants or non-essential item
items with a substitute
inelastic demand
price increase=not a significant change in demand
needs or essential items
items with no subsitute
Law of Demand
when a good or service’s prices are lower, consumers will demand (buy)...more of it
