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Econ Unit 2: Supply and Demand
Terms in this set (41)
Demand is the desire and ability to ___ a good or service
Why must you have both components (desire and ability) to buy a good or service?
if one is missing, you will not buy the item
Supply is the desire and ability to____ a good or service
In what way will you be suppliers?
the amount that consumers will demand at a particular price
the amount that businesses will offer at a particular price.
In both supply and demand, the ___ is the retail price/shelf price the consumers ___ for the item.
Law of demand
the demand for an economic product varies inversely with its price
Law of supply
the quantity supplied varies positively with its price
"all other things being equal", only one variable can change
What is elasticity of demand
the degree to which changes in price cause changes in quantity demanded
what is elastic demand
consumers are sensitive to price changes, price and revenue move in opposite directions (price up, revenue down)
What implication does elastic demand have for consumers?
it is easy for suppliers to pass cost savings onto the customers, it is difficult for suppliers to pass cost increases onto customers
What is inelastic demand
consumers are not sensitive to price changes, price and revenue move in the same direction (price up, revenue up)
What impliction does inelastic demand have for consumers?
there is no incentive to pass cost savings onto the customers, it is easy to pass cost increases onto the customer
Factors of elasticity: timing of the purchase
if the price of pizza suddenly increased, you could simply wait until it came back down; if the price of gas suddenly increased you keep buying gas
Factors of elasticity: availability of substitutes
if there are adequate substitutes, you will buy the substitutes; if not you will
Factors of elasticity: item's percentage of your income
the larger the percentage of your income, the more sensitive you will be in response to the price change
Change in quantity demanded?
when a change in price leads to a change in quantity demanded
what is a change in demand?
a change in the quantity demanded regardless of price
What is the difference between a change in demand and in quantity demanded?
What causes the change in quantity: price or everything else
Factors of demand
Consumer taste and preference, compliments, substitutes, number of consumers, expectations, and consumer income
Goods you buy when you can afford them; as income rises, consumers buy more of these items because they are able to buy more of them
Goods you buy to save money; as income rises, consumers buy less of these items because they are able to buy better items
What is a consumer's goal when making a purchase?
What is the supplier's goal when selling?
What happens to the quantity demanded when the price increases?
What happens to the quantity supplied when the price increases?
What is a price ceiling?
The highest price allowed by law
Who is the government trying to protect when they enforce ceilings?
What is the possible result of a price ceiling? Why?
Shortages, The Law of Supply and the Law of Demand
Give an example of a price ceiling
What is a price floor?
The lowest price allowed by law
Who is the government trying to protect when enforcing floors?
What is a possible result of a price floor? Why?
Surpluses, the law of supply and the law of demand
Give an example of a price floor
What is a consumer's
Factors of supply
Cost of production, productivity, number of suppliers, subsidies, expectations, and government regulations
Shortage and why
When the quantity demanded is greater than the quantity supplied; Shortages are caused by the price being too low because They encourage consumers to buy, They discourage businesses from supplying; increase price
Surplus and why
When the quantity supplied is greater than the quantity demanded; Surpluses are caused by the price being too
high because They discourage consumers from buying, They encourage businesses to supply; decrease price
The price at which businesses are willing to supply the same amount that consumers are willing
Sets with similar terms
Supply and Demand (Unit 7 & 8)
Economics Unit II
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