Price and Relative Price
“The amount of money exchanged for a good or service" is known as what?
Price
This is the price at which quantity supplied equals quantity demanded
Equilibrium price
T/F: Supply and demand essentially refer to the same thing
False
When demand or supply changes very little as price fluctuates
Inelasticity
!!! DAILY DOUBLE !!!
T/F: Government intervention only regulates businesses; it does not pertain to individual consumers
False
When a $15 sandwich is compared to a $5 sandwich, this relative-price ratio results.
3:1 (or just 3)
Define the Law of Supply
Producers supply more when prices rise (and vice versa)
When graphing supply and demand, what do you label the x- and y-axes?
x-axis = quantity
y-axis = price
Define elasticity
When the quantity demanded or supplied changes in response to a change in price
This is a minimum legal price for selling a good or service
!!! DAILY DOUBLE !!!
Define relative price
A price comparing one good/service to another or to a person’s income.
Define the Law of Demand
As price rises, quantity demanded falls (and vice versa)
Explain how consumer expectations are a determinant of demand
Expectations about future prices or income that cause consumers to buy more now or delay purchases
Name 3 elastic goods
Restaurant meals, vacation travel, and jewelry fall under this type of demand responsiveness
Define price ceiling
A maximum legal price set by the government
This market force combination determines the “ideal” price where customers can consume the total number of items available.
This is a market condition where quantity demanded exceeds quantity supplied
Shortage
Differentiate normal and inferior goods
Normal Goods are goods for which demand goes up when income is higher and for which demand goes down when income is lower
Inferior Goods are goods that consumers demand less of when their incomes increase
When the elasticity coefficient equals 1, meaning quantity changes in the same proportion as price
Unit elastic
Identify one pro and one con of government intervention
Pro: Protect consumers, environment, etc.
Con: Stifle innovation and growth, create inefficiencies, etc.
When a TV price drops from $3000 to $2000 because consumers find cheaper alternatives, this concept is being demonstrated.
Scarcity and shifts in demand changing relative price
Demand can shift due to these reasons (name 3)
Changes in substitute goods
Changes in prices
Changes in income
Changes in perceived value
Identify and explain three determinants of supply
Input (Resource) Costs – Changes in the price of raw materials, labor, or energy affect production costs and therefore how much producers are willing to supply
Technology – Advances in production methods can increase efficiency, lowering costs and expanding supply
Number of Sellers – More firms in the market increase total supply, while fewer firms reduce it
Producer Expectations – Anticipation of future prices or economic conditions can alter current supply
Government Policy – Taxes increase costs (reducing supply), while subsidies or deregulation lower costs (increasing supply)
Prices of Related Goods (in Production) – When goods share production resources, producers may shift output depending on which is more profitable
Explain the elasticity of demand coefficient equation and what different values indicate
% Change in Qty
—---------------------
% Change in Price
=
Elasticity of Demand Coefficient (E)
E > 1 (qty changes > price) = demand is elastic
E = 1 (qty changes = price) = demand is unit elastic
E < 1 (qty changes < price) = demand is inelastic
E = 0 (qty does not change at all with price) = perfectly inelastic
Identify two specific, real-world examples of government interventions in the marketplace