Demand and Supply II Flashcards
What is movement along a curve caused by?
An change in the price results in a change in the quantity demanded (or supplied). ((Ceteris paribus))
What is a shift in demand/supply caused by?
Anything other than price.
What is a leftward movement of a curve signify?
Decrease in demand/supply.
What is a rightward movement of a curve signify?
Increase in demand/supply.
What are some factors causing a shift in demand?
- Change in consumer taste (or preference)
- Change in population
- Change in expectations of future price rises
- Change price of a substitute
- Change in price of a complement
- Change in income (and the product is normal)
- Change in income (and the product is inferior)
Assumption that price remains fixed and
some other factor changes so as to affect the quantity
demanded by the consumer
What is a substitute good?
A product or service that can be used in place of
other products or services. ie: used as replacements.
Example: LPG gas as a substitute for petrol.
What is a Complement good?
Products or services that are consumed together.
Examples: computer ink and paper, Big Mac and
fries, beer and peanuts.
What is a normal good?
As income increases, consumer demand
increases for the product or service.
As income decreases, consumer demand decreases for the product or service.
What is an inferior good?
As income decreases, consumer demand
increases for the product or service.
As income increases, consumers demand decreases for the product or service.
What occurs to a substitute good if a price of the other good increases?
Demand for substitute increases. (shift right)
What occurs to a complement good if the original products price increases?
Decrease (left shift) in demand for complement good.
How does income change demand of a Normal and Inferior good?
Normal good demand goes up when income increases.
Inferior good demand increases when income decreases.
What are some factors causing a shift in supply?
- Change in number of suppliers in the market
- Change in expectations of future selling price
- Change in level of input costs
- Change production to a new, substitute product
- Changes in technology
- Changes in government taxes on a product
Shift assumes price remains fixed and
some other factor changes to affect the quantity
supplied by the producer.
How does one calculate profit?
Profit = revenue – expenses
= price/unit * quantity – expenses
How could a suppliers profit increase?
- quantity supplied is able to be increased, while
- expenses remain constant or reduce (per unit sold).
Reducing expenses (per unit sold) allows more to be
supplied at the same price, increasing profit, and
hence a shift in the supply curve to the right.
