Price and Relative Price
T/F: Supply and demand essentially refer to the same thing
False
This is a market condition where quantity demanded exceeds quantity supplied
Shortage
When demand or supply changes very little as price fluctuates
Inelasticity
“The amount of money exchanged for a good or service" is known as what?
Price
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
!!! DAILY DOUBLE !!!
Define relative price
A price comparing one good/service to another or to a person’s income.
Define the Law of Supply
Producers supply more when prices rise (and vice versa)
If the change in price is 0>1 is it elastic or inelastic
Inelastic
This market force combination determines the “ideal” price where customers can consume the total number of items available.
This is the price at which quantity supplied equals quantity demanded
Equilibrium price
When the elasticity coefficient equals 1, meaning quantity changes in the same proportion as price
Unit elastic
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
Identify and explain one determinant 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 supply formula
% Change in Qty Supplied
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% Change in Price