Supply and Demand

Demand

a desire, ability, and willingness to buy a good/service

Microeconomics

The study of the economic behavior and decision making of small units, such as individuals, families, and firms (businesses)

Law of Demand

prices are lower, consumers will buy more; prices are higher, consumers will buy less

The income effect

the change in consumption resulting from a change in price, “more bang for your buck

Substitution Effect

when consumers react to an increase in a good's price by consuming less of one good and more of other goods

Individual Demand Schedule

a table that lists the quantity of a good that an individual will purchase at each price in a market.

Market Demand Schedule

lists the quantity of a good that all consumers will purchase at each price in the market. 

Demand Curve

graphically represents the demand schedule 

Demand always curves point

Down

Movement

caused by a change in the price of a product 

Consumer Income

The amount of money a consumer has can affect their willingness to purchase certain items 

Price of Related Goods

demand for goods can be affected by the price of related goods.

Consumer Tastes

changes in popularity change the “dollar fatigue” of the consumer 

Consumer Expectations

the way people anticipate changes in products, technology, or the economy

Population

an increase/decrease in the number of consumers

Quantity Demanded (Movement)

A change in the amount a consumer will purchase as a result of a change in price

ceteris paribus

all other things constant, all things remaining the same

Demand (shift)

A change in the amount a person will buy as a result of an outside factor (change in ceteris paribus- popularity of product, consumer income, etc.) not having to do with price.

Supply

is the amount of “stuff” that is produced by firms and offered for sale

Supplier

a person or organization that provides a good or service in the marketplace.

Law of Supply

states that high prices give businesses an incentive to produce; low prices cause producers to reduce production.

Supply Schedule

a table that lists how much of a product a firm(s) will supply at different prices

Supply Curve

a graphic illustration of the supply schedules, which shows how much a product firm will supply at different prices.

right

Shifts to the ???? indicate an increase in the ability to supply (good for the firm)

Input Costs

represent the cost of producing the good/increases/decreases based on the materials necessary to produce (inputs)

Technological Innovations

improve the ability to produce and increase stability to supply

Regulation

government increases rules, which reduces the ability to supply

Subsidy

a government makes payments that supports a business or market

Expectations

if supplies believe a market will be strong, they will build up their supply of a product.

Education

increases in human capital increase the ability to produce

Supply Shock

• a sudden shortage of a good due to a natural disaster or human error

QS (Quantity Supplied)

A change in the amount of a supplier will produce as a result of a change in price

Supply

A change in the amount a supplier can produce as a result of a change in the capacity to produce (i.e., investment in new machinery in the lawn business) 

Price

the value of a product as established by supply and demand 

Equilibrium

the point of balance where demand and supply come together 

Market

clearing price- price that has cleared the market, accepted by both buyers and sellers 

Disequilibrium

occurs when the quantity supplied is not equal to the quantity demanded 

Law of Supply and Demand

the price of any good adjusts to equilibrium

Higher Demand

leads to a higher price equilibrium and an increase in the quantity supplied.

Lower Demand

leads to a lower price equilibrium and a decrease in the quantity supplied.

Excess Demand

quantity demanded is greater than quantity supplied at the current price

Shortage

not enough of a product to satisfy the amount demanded by the consumer 

Excess Supply

quantity supplied is greater than quantity demanded at a current price

Surplus

too much of a product above what is used or needed

Price Ceiling

government imposed, legal maximum price that can be charged for a good/service

Price Floor

government imposed, minimum prices that can be legally charged for a good or service