Unit 3

Change in demand:

1. Price of related goods 2. Income of consumers 3. Expected future prices 4. Overall population 5. Preferences

Change in supply:

1. Price of the factors of production 2. Price of other goods produced 3. Expected future prices 4. Number of suppliers 5. Technology

shortage

A situation where the quantity demanded is greater than the quantity supplied.

surplus

A situation where the quantity supplied is greater than the quantity demanded.

law of supply

All other things remaining the same, the higher the price, the larger the quantity supplied (& vice versa).

law of demand

All other things remaining the same, the higher the price, the smaller the quantity demanded (& vice versa).

relative price

Amount of goods that must be given up in exchange for another good.

money price

Amount of money it takes to purchase something.

3. expected future prices

Consumers want to purchase the goods for the best price. Therefore, if the good is likely to be more expensive in the future, the current demand will go up. If the good is likely to be less expensive in the future, the current demand will go down. Ex: You know that that Bape hoodie is on sale next week, so your demand this week is low but it sure is gonna be high af when you can get it next week.

Elastic demand

ELASTICITY: Demand elasticity is a measure of how much demand will change if another market variable, such as price, changes. Ex: If beef prices rise, most consumers will switch to other protein substitutes, such as chicken or pork, and the demand for beef will decline. INELASTICITY: Inelasticity of demand describes a product or service which is unaffected by a change in price or other market factors. Ex: Electrical power. We all have to have it and can't do without it. We will pay almost any price to have it at our disposal. Also, Cigarettes. If cigarette tax increases and the price of all tobacco increases, demand will be inelastic because many smokers are addicted and don't have any alternatives.

Elastic supply

ELASTICITY: Supply elasticity describes the percentage change in quantity supplied divided by the percentage change in price. It is a measure of how much supply will change if the price of a product or service changes. Ex: Farmer's crops. If the price of corn declines, the farmer will rotate to another crop, such as wheat, alfalfa, or hay. INELASTICITY: Inelasticity of supply describes a product or service which is unaffected by a change in cost or other market factors. Ex: Electrical power. Public utilities have to continue to transmit power because it can't be stored. Due to government regulations, they are mandated to continue to transmit electricity. It's a public necessity.

2. income of consumers

Fluctuations in consumer income will affect the demand of consumers in a couple of ways: INFERIOR GOODS: Goods that consumers buy less of when they earn more money and more of when they earn less money. Ex: Shitty $1 UHT semi-skinned Taiwanese milk, shoes from Clementi market, struggle goods. NORMAL GOODS: Goods that consumers buy more of when they earn more money and less of when they earn less money. Ex: Name-brand clothing, shoes, or coffee. As overall consumer income goes up, demand for normal goods will go up, and vice versa.

4. overall population

If the overall population of an area goes up, the demand for goods goes up. If the overall population goes down, then the demand for goods goes down.

change in supply

If all else is constant, change in supply will result in a movement along the supply curve.

1. price of the factors of production

If the cost of the factors of production decreases, then the quantity supplied will increase, and vice versa.

3. expected future prices

If the price of a good is expected to fall in the future, then supply will go down because suppliers will decrease the amount they offer for sale. They will wait and offer more for sale when the price increases. Ex: When would we be able to sell our NFL T-shirts at the highest price? The beginning of the football season is the time that we can get the highest price for our T-shirts, not during off-season.

change in quantity demanded

Movement along the demand curve due to a change in price.

5. technology

New technology allows suppliers to produce goods at a faster and cheaper rate. As new technologies are developed, the supply of goods will increase. For example, computers, cell phones, and TVs are now produced a lot faster and cheaper than they were when they first came out.

2. price of other goods produced

SUBSTITUTE IN PRODUCTION: A good that can be produced instead of the good you are producing. For example, the same factory that produces cars can also produce airplanes. If the factory is producing cars and the price of airplanes goes up, the supply of cars will decrease. COMPLEMENT IN PRODUCTION: A good that is produced along with another good. For example, beef and cowhide (leather) are produced together. An increase in the price of beef will create an increase in the supply of cowhide. An increase in the price of cowhide will create an increase in the supply of beef.

1. related goods

Substitutes and compliments. SUBSTITUTE: A good that can be used in place of another good or service. An example of a substitute for song downloads is CDs. If CD prices go up, song download demands increase, and vice versa. COMPLIMENT: A good that is commonly bought along with another good. Some examples of complements are hot dogs and hot dog buns, pens and paper, and computers and printers. If the price of a complement goes up, the demand for the good will go down. If the price of a complement goes down, then the demand for the good will go up.

4. number of suppliers

Supply will increase when the number of suppliers increases. Supply will decrease when the number of suppliers decreases. That's why from 1 bread shop in a big city, there comes a hundred.

supply

The amount of a good or service that producers plan to sell during a given amount of time at a particular price.

demand

The amount of a good that consumers are willing and able to buy at a given price.

5. preferences

The case in which each individual prefers different goods and services. Technology influences this a lot. How? In the past years, the demand for cassette tapes and CDs has decreased significantly. Why? Because people prefer to get music from iTunes or Spotify.

marginal cost

The cost of producing one more unit of output. Production stops when marginal cost of good is equal to price of good, because one stops making money past that point.

price ceiling

The highest legal price that can be charged for a good or service. A price ceiling has to be set below the equilibrium price in order to impact the economy.

price floor

The lowest legal price that can be paid for a good or service. In order for a price floor to have any impact on the economy, it must be set above the equilibrium price.

theory of supply and demand

The price of something will tend toward a point where the quantity demanded is equal to the quantity supplied. This price is known as the equilibrium/market-clearing price, because it "clears away" any excess supply or excess demand.

equilibrium point

Where the quantity supplied equals the quantity demanded.