Supply
What is the Law of Supply?
In increase in the prices of goods leads to an increase in the supply of goods and services.
What is the Law of Demand?
As prices increase, demand decreases...
Or, price and demand are inversely related.
What is another word for price?
Compromise - an agreement between a buyer and seller.
What are the two "characters" in the circular flow model?
Businesses and Households
Define competition.
Rivalry between sellers as they try and win more buyers
List 4 of the 6 Supply Shifters
Cost of Production, Cost of Resources, Demand of Other Goods, Expectations, Number of Sellers, Subsidies and Taxes
List 4 of the 6 Demand Shifters
Expectations, Number of Consumers, Consumer Tastes, Complements, Substitutes, Income
What is the point called when demand and supply meet?
Equilibrium or Market-Clearing Price
What are the factors of production?
Natural Resources, Land, Comfort, Entrepreneurship
Which type of competition allows only one seller to determine the price of a good?
Monopoly
Explain the difference between cost of resources and cost of production. Give an example for each.
Cost of resources has to do with the materials that go in to producing a product. Cost of production has to do with the labor and technology needed to produce a project.
Will an increase in demand lead to a surplus or shortage?
Shortage. More consumers will want to buy, the amount supplied has not changed yet.
A price floor is something that the government sets to ensure that a minimal price is paid for something. A price floor leads to a surplus.
Ms. Canup is starting a flower shop where she takes flowers from her garden and sells them for a profit. Her roommate works for her. What is an example of each factor or production?
Natural Resource: Flowers
Labor: Roommate
Capital: Scissors, vase, ribbon, etc.
Entrepreneurship: Ms. Canup
Define natural monopoly and give an example.
A natural monopoly occurs because it is important to society. An example would be electricity (allowed to exist because everyone needs it).
Will an increase in supply lead to a shortage or surplus? Why?
Surplus. Suppliers are able to produce more at every price level.
What is the difference between a substitute and a complement?
A substitute replaces an item. A complement goes with the item.
Academy Sports supplies fan gear for the football season. However, they mostly sell Clemson football gear. Because of Clemson's loss 2 weeks ago, the demand for Clemson has decreased.
1. Identify the demand shifter.
2. What will happen to the price of Clemson merchandise?
1. Shifter = Trends / Consumer Tastes
2. The price will decrease.
Define comparative advantage. What is the difference between that and absolute advantage?
Comparative advantage is when company can produce a product at a cheaper rate than another company. An absolute advantage means one company is better at producing a good than any other company.
What sets the price in perfect competition?
Supply and Demand (aka equilibrium)
One of the demand shifters is change in number of sellers. Define what this is, and give an example.
More suppliers of a specific good enter the market, so the supply of that product in the market increases.
One of the demand shifters is change in number of consumers. Define what this is, and give an example.
Change in the population of people who regularly demand a product. Examples will range.
Mr. Haraway owns a granola company called Mt. Gilead Granola. He and his friend work to produce and sell the granola. Unfortunately, his friend has quit, and now Mr. Haraway is alone.
1. Will this impact supply or demand?
2. What is the shifter?
2. What will happen to the price of Mt. Gilead Granola?
1. Supply
2. Cost of Production
3. Price increases
Why is price not a shifter?
Price obeys the Law of Supply and the Law of Demand. It is just the point moving along the line.
What is the difference between perfect competition and monopolistic competition?
In a perfect competition, many sellers offer the same product. With monopolistic competition, sellers offer differentiated goods in an attempt to gain more customers.