Demand
Define the term Demand
The willingness AND ability of consumers to buy a good or service at a specific period of time.
Define the term Supply
the willingness and ability of sellers to produce a good or service
What is an inelastic good?
Something that has to be consumed no matter how much it costs
The state of equilibrium is what?
Ideal, at rest, or balanced.
This will leave an individual or organization better off.
Positive Incentive
What is the Law of Demand?
The quantity demanded varies inversely with the price, other things remain constant
Higher Price, Lower Demand
Lower Price, Higher Demand
What is the law of Supply?
quantity supplied varies positively (or directly) with price, other things constant
Higher Price, Higher Supply
Lower Price, Lower Supply
What is an elastic good?
Something that can be replaced or done without and generally replaced with a substitute good
When does Equilibrium exist?
When quantity demanded and quantity supplied are equal.
What are the two types of price controls? What do they do?
Price Ceiling- The maximum price that can be charged
Price Floor- The minimum price that can be charged.
What factor causes a movement along the demand curve?
A change in Price
What causes a shift on the supply curve?
The Determinants of Supply
Texas Roadhouse increases the prices of all food items by $5. Is Texas Roadhouse an elastic or inelastic good/service?
Elastic, there are plenty of substitute restaurants to go to.
Who creates Equilibrium naturally through competition?
Buyers and Sellers
What is a Surplus?
Quantity Supplied exceeds quantity demanded
After a recent WHO report about the benefits of Kale on the human brain, consumers began purchasing more Kale. What happened to the demand for kale?
Which way will the graph shift and whats the determinant?
Increased Demand for Kale, shift to the right, and change in tastes and preferences
What would happen to the Supply Curve of iPhones if
Buyers Reject New iPhone Models: Sellers Lower Prices
Increase or decrease, and where will it shift?
No Change in Supply only in quantity supplied. There will be a movement on the Supply curve.
Consumers Energy ups their prices by $2 for each kWh used?
Is this an elastic or inelastic good?
Inelastic people need electricity in their house to function.
What is Market Disequilibrium caused by?
Existence of either a surplus or shortage.
Who imposes price controls?
The Government
What are the 5 determinants of Demand?
Changes in Income
Changes in price of related goods
Substitute: goods that can replace one another
Compliments: goods that are consumed together
Changes of size or composition of the population
Change in price expectations
Changes in tastes and preferences
What are the 5 Determinants of Supply?
–The cost of resources used to make the good
– Technology used to make the good
– Producers’ price expectations
– Producers’ expectations of the costs of resources
– The number of sellers in the market (competition)
What are the 4 factors affecting elasticity?
Availability of Substitutes, Luxury vs. Necessity, Time Horizon, and Share of consumers' budget.
Why is the state of Equilibrium Ideal? Explain.
Equilibrium is ideal because markets are constantly changing in price and being changed by determinants (Supply and Demand)
What is an example of a price Ceiling?
Rent control, Prescription drugs, Hospital Fees, etc.