Law of Demand: When the price of a product increases, demand will fall

Law of Supply: When the price of a product increases, production will increase

Demand: The amount of a good or service that consumers are willing and able to buy at different possible prices

Graph of Demand: Goes down to the right

Graph of Supply: Goes up and to the right

Buying Power: The change in consumption patterns due to the change in purchasing power

Income Effect: Same as buying power

Diminishing Personal Value: As prices rise consumers will only buy what is most important

Diminishing Marginal Utility: No matter the price the usefulness of a product will reduce with each additional product bought

Substitute Goods: A good or service that can replace another good or service

Complementary Goods: A good that is consumed with another good

Price Elasticity of Demand: How much the price changes the quantity of demand

Price Elasticity of Demand Formula: Percent change in quantity over percent change in demand

Elastic: Sensitive to price changes

Inelastic: insensitive to price changes

Determinants of Elasticity of Demand: Availability of substitutes, time horizon, category of product (Specific or broad), necessity vs. luxury, purchase size relative to consumer’s budget

Relatively Elastic: PED >1 (more horizontal)

Unit Elastic: PED=1

Perfectly Elastic: PED = infinity (Horizontal Line)

Relatively Inelastic: PED <1 (more vertical)

Perfectly Inelastic: PED= 0 (Vertical Line)

Factors that shift the demand curve: Income, price of related goods, tastes, expectations, number of buyers

Marginal Cost: Additional cost of a decision

Supply: A company willing and able to produce various amounts of product at different prices

Does a change in demand effect supply?: No

Price Effect: Movement along the supply (or demand) curve

Production-Motivating Function of Prices: Prices rising and decreasing either bring in or push out producers

Price Elasticity of Supply: Responsiveness of quantity supplied when the price of the good changes (Always Positive)

Inelastic Supply Curve: Harder to change production in a given time period

Elastic Supply Curve: Easier to increase or decrease output without a rise in cost or time delay

Example of Perfectly Inelastic Supply: Front row stadium seats, can’t make more

Change in Supply/Demand: Shifting the curve

Factors that shift the Supply Curve: Changes in input prices, prices of related goods or services, changes in technology, change in expectations, changes in number of producers