Supply And Demand

Demand is the different quantities of goods that consumers are willing and able

Inverse relationship between price and quantity demanded

[[when price increases, demand decreases[[

[[when price decreases, demand increase[[

Substitution Effect- price goes up for a product, consumer buys less and more of another substitute product (& vice versa)

Income Effect - price goes down for a product, consumers purchases more

Law of diminishing marginal ulitiy- as you consume anything, the additional satisifaction that you will eventually decrease

[[Five determinates Demand curve[[

  • taste & preferences (trends/ marketing)
  • number of consumers (population/demographic)
  • price related goods( substitues & complements)
  • income (normal good or inferior good)
  • Future expectations (seen the most)

Suppy is the different quantities of a good that sellers are willing and able to sell at different prices

A shift is caused by anything BUT price

[[Determinates of supply curve[[

  • Cost of production of inputs (cost goes up supply moves left)
  • number of sellers (natural disaster causes decrease)
  • technology
  • government action ( taxes/ tarriffs/ excise)

Drawing an Equilibrium graph

  1. draw graph

  2. shift curve

  3. label

    equilibrum graph

Consumer Surplus: economic benefit or gain that consumers receive when they are able to purchase & willing to pay.

Producer Surplus: the total amount that a producer benefits from producing and selling a quantity of a good at the market price.

Tarrifs - taxes on imported goods

without trade

with trade

pw - world price

Qs- domestic production

Qd- domestic demand

With trade: consumer goes up producer, goes down

Tarriff

Pt- tax on trade (tarriff)

Tarriff revenue - how much gov made

Dwl- dead weight loss

With Tarriffs: producers surplus goes up

Price control

price ceiling - maximum price legally a seller can charge for a product

  • goal is to make affordable by keeping price from reaching equilibrum

Price floor - minimum legal price a seller can sell a product

  • goal is to keep price high by keeping it from falling to equilibrum

Excise tax- a per unit tax on producers (for every unit made, the must pay money for unwanted units)

  • examples: cigerattes/alchol tax (sin tax)