Unit 1: Basic Economic Concepts - Demand and Supply

January 23, 2018

Demand and Supply

Demand 

• Demand Schedule: 

• Demand Curve: 

• Demand: The quantities that people are willing and able to buy at various prices.
• The Law of Demand: There is an inverse relationship between price and quantity demanded.
• P↑, Q↓ OR P↓, Q↑
• What causes a "change in quantity demanded"?
• ⃤  in price
• Determinates of Demand: 
1. ⃤  in buyer's taste
2. ⃤  in number of buyers (population)
3. ⃤  in income
• Normal Goods: Goods that people buy more of when their income rises.
• Inferior Goods: Goods that people buy less of when their income rises.
• Example: Instead of instant noodles, I buy fettucine.
4. ⃤  in price of related goods
• Substitute Goods: Goods that serve roughly the same purpose to buyers.
• Example: Coca - Cola and Pepsi
• Complimentary Goods: Goods that are often consumed together
• Example: Hamburger and fries
5. ⃤  in expectations (future)

Supply

• Supply Schedule: 

• Supply Curve: 

• Supply: The quantity that producers or sellers are willing and able to sell at various prices.
• The Law of Supply: There is a direct relationship between price and quantity supply. 
• P↑, Q↑ OR P↓, Q↓
• What causes a "change in quantity supplied"?
• △ in price
• Determinates of Supply: 
1. △ in the number of sellers/ suppliers
2. △ in the costs of production/ resources prices
3. △ in technology
4. △ in weather
5. △ in taxes or subsidies (money government gives)
6. △ in expectations

Buyers: 

• Price Ceiling: Legal Maximum price meant to help buyers
• Keeps prices from getting too high
• 4 Consequences of Price Ceilings set too low:
1. lower prices for some consumers
2. shortages
3. illegal sales above the equilibrium
4. long lines for the buyers
• Example: rent control

Sellers: 

• Price Floor: Legal minimum price meant to help sellers.
• Keep product prices from falling
• 4 Consequences of a Price Floor:
1. higher product prices
2. surplus
3. higher taxes
4. waste - produced but never used
• Example: minimum wage