Supply and Demand Flashcards
(36 cards)
What is quantity demanded?
The amount of a good or service a consumer is willing and able to buy at a given price.
What is a demand schedule?
A table showing the relationship between price and quantity demanded.
What is a demand curve?
A curve that shows the relationship between the price of a product and the quantity demanded.
What is market demand?
The total demand by all consumers for a given good or service.
What does the law of demand state?
As price falls, quantity demanded increases; as price rises, quantity demanded decreases (ceteris paribus).
What is the substitution effect?
Change in quantity demanded due to a good becoming relatively cheaper or more expensive compared to substitutes.
What is the income effect?
Change in quantity demanded resulting from a change in consumer purchasing power due to a price change.
What does ceteris paribus mean?
“All else being equal” — assumes other variables are held constant when analyzing two variables.
What causes the demand curve to shift?
Changes in:
Prices of related goods
Income
Population and demographics
Tastes and preferences
Expected future prices
What are substitutes?
Goods used for similar purposes. If the price of one rises, demand for the other increases.
What are complements?
Goods used together. If the price of one rises, demand for the other falls.
What’s the difference between normal and inferior goods?
Normal goods: Income ↑ → Demand ↑
Inferior goods: Income ↑ → Demand ↓
How do population and demographics affect demand?
More people = more demand; demographic changes affect demand for specific goods.
How do tastes and preferences shift demand?
Changes due to trends, information, seasons, etc., can increase or decrease demand.
How do expectations of future prices affect demand?
If consumers expect prices to rise, demand increases now; if they expect a fall, demand decreases now.
What is quantity supplied?
The amount a firm is willing and able to supply at a given price.
What is a supply schedule?
A table showing the relationship between price and quantity supplied.
What is a supply curve?
curve that shows the relationship between price and quantity supplied.
What is market supply?
Total supply from all firms of a good or service.
What does the law of supply state?
As price increases, quantity supplied increases; as price falls, quantity supplied decreases (ceteris paribus).
What causes the supply curve to shift?
Changes in:
Prices of inputs
Technology
Prices of substitutes in production
Number of firms
Expected future prices
How do input prices affect supply?
Higher input costs → less supply; lower input costs → more supply.
How does technological change affect supply?
Better tech = more output with same inputs → supply increases.
What are substitutes in production?
Products made with the same resources. If one becomes more profitable, firms switch, reducing supply of the other.
