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supply
amount of a product a producer or seller would be willing to offer for sale at all possible prices in a market at a given point in time
demand
combination of quantites that someone would be willing and able to buy over a range of possible prices and at a given moment
in demand, we look at: the price of a product and the quantity available at a given point in time
elasticity
a measure of responsiveness that tells us how a dependent variable, such as quantity demanded or quantity supplied, responds to a change in an independent variable such as price
supply elasticity
responsiveness of quantity supplied to a change in price
demand elasticity
to extent to which a change in price causes a change in the quantity demanded. Demand elasticity has 3 cases: elastic, inelastic, or unit elastic
variable
in math, a symbol which serves to represent an unknown value which may change
dependent variable
values change based on the influence of the independent variable
independent variable
value does not change due to the influence of other variables
ceteris paribus
“other things held constant”
fundamental concept of demand
in a market economy, people and firms act in their own best interest to answer the basic questions
WHAT are we going to produce
HOW are we going to produce it
FOR WHOM are we producing it for
substitution effect
if the price of tacos goes up, people will move away from tacos and buy a substitute. If the price of tacos drops, people will move away from the substitutes and buy more tacos
income effect
if people’s income drops, they will buy less tacos because they have less purchasing power. If the price of tacos drops, their income has more purchasing power and they can buy more tacos so quantity demanded increases
law of diminishing marginal utility
as you consume more tacos you get less and less satisfaction from it so the price has to fall in order to make it worth your money to continue consuming tacos
5 things that shift the demand curve
preferences, numbers of buyers, price of related goods, income, expectations
equilibrium
point where supply and demand are equal and both producers and consumers are happy with the price
market clearing price
price mentioned in equilibrium
market clearing point
another term for equilibrium and market clearing price
5 things that shift the entire supply curve
price of resources, number of producers, change in technology, government involvement, expectations
in supply, price and quantity supplied have a _____ relationship
positive
in demand, price and quantity demanded have an _______ relationship
inverse
in both supply and demand, a change in price results in a change in ___
quantity
in supply, when price goes up quantity supplied goes ____
up
in demand when quantity demanded goes up, price goes
down
anytime price increases, there is a _____
SURPLUS
<1 (less than 1)
inelastic
>1 (greater than 1)
elastic
1
unit elastic
inelastic
a product with only a few substitutes, more of a necessity and less of a luxury, more general and less specific
ex: a house, gas
elastic
very specific, less general, more of a luxury than a necessity, has many substitutes
ex. Taylor Swift’s custom-built mega yacht, tacos
equation to remember
% change in quantity/% change in price
perfectly inelastic
products with no substitue, a necesity
ex. water
perfectly elastic
products that are high end luxuries, if price changes at all nobody will buy
ex. diamonds
