Economics Unit 2-3
Who demands in the product market?
Who produces in the market?
Demand: Demand is the different quantities of goods that consumers are willing and able to buy at different times
Law of Demand: An Inverse relationship between demand and supply
3 separate behavior patterns
Substitution effect: Price goes up, consumers buy less, and find cheaper items
The income effect: When a price goes up or down, it will impact purchasing power
Law of diminishing marginal utility: As you consume more units of goods, the additional satisfaction from each additional unit will eventually start to decrease
The Demand Curve
A demand curve is a graphical representation of a demand schedule
It’s a downward slope showing the inverse relationship between price and quantity demanded.
CHANGES IN PRICE DON’T SHIFT THE CURVE
5 Shifters of the demand curve:
Changes in income
Number of consumers
Expectations about future prices
price of related goods
Tastes and Preferences
Substitutes are goods used in place of one another
Complements are two goods that are bought and used together (If the price for one increases, they both decrease)
Income
Normal Goods
As income increases, we will buy more
As income falls, demand falls
Inferior Goods:
As income increase demand falls
As income falls, demand increases
Supply: The Different quantities of a good that sellers are willing and able to sell at different prices
Law of Supply: A direct or positive relationship between price and quantity supplied
As price increases the quantity producers make increases
As price falls the quantity producers make falls
Shifters of Supply
Prices/Availability of inputs
Number of sellers
Technology
Government action
Opportunity Costs of Alternative Products
Expectations of future policies
Whenever there is a surplus, producers lower prices
When there is a shortage, producers raise prices
Price Ceiling: The maximum legal price a seller can charge for a product
Price Floor: Minimum legal price a seller can sell a product for