Economics Supply & Demand

excise tax

A fee on the production of a good or service.

Black Market

"underground" or illegal market in which goods are traded at prices above their legal maximum prices

Law of Demand

All else held constant, as price for a good/service increases, the quantity demanded decreases.

Substitution

A factor affecting the demand for a good or service. Occurs when the price of an equal replacement changes.

subsidy

A government payment that helps a producer supply a product or service.

Price Ceiling

A legal maximum price that may be charged for a good or service

Price Floor

A legal minimum price below which a good or service may not be sold

Law of Supply

All else held constant, as the price of a good/service increases, the quantity supplied increases.

Demand Curve

DOWNWARD SLOPING LINE that shows quantity demanded at different prices on a graph

Demand curve shifts to the LEFT

Decrease in demand

Elasticity

Economic concept dealing with consumers or producers responsiveness to an increase or decrease in price of a product, in others words, HOW MUCH the quantity responds to price.

Demand curve shifts to the RIGHT

Increase in demand

causes of a shift in supply

Input costs, Number of sellers, government intervention, technology, labor productivity, producer expectations of a future price change

Inelastic Demand

Situation in which a product's price change has little impact on the quantity demanded by consumers

Elastic Demand

Situation in which the rise or fall in a product's price greatly affects the amount that people are willing to buy

Quantity Supplied

The amount of a good or service that a producer is willing and able to supply at a specific price

Quantity Demanded

The amount of goods or services a consumer is willing and able to purchase at one set price.

A shift in demand

The demand curve shifts moving the whole line to a different spot on the graph when some big change happens.

Rationing

The distribution of goods and services based on something other than price

Equilibrium Price

The price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy

A shift in supply

The supply curve shifts moving the whole line to a different spot on the graph when some big change happens

Surplus

Too much of a product at a price, occurs when the price is set too high

Supply Curve

UPWARD sloping line that shows on a graph the quantities supplied at each possible price

Market

Voluntary exchange of goods and services between buyers and sellers.

Normal good

When income increases, the demand for these types of items also increases.

Inferior good

When income increases, the demand for these types of items decreases.

A change in quantity demanded

a change in price moves quantity to a different spot on the curve

factors that affect supply elasticity

amount of skill, amount and cost of capital, ease of obtaining the resource, amount of time

factors that affect demand elasticity

availability of substitutes, ease of delaying the purchase (necessity or luxury), and % of income

labor productivity

efficiency of workers, usually increased through education and training

Causes of Shifts in Demand

market size, income changes, consumer tastes, substitutes, complementary goods, consumer expectations of a future price change

factors that affect supply elasticity

time, skill, capital and ease of obtaining resources

Supply

willingness and ability to offer a good or service for sale (at all prices)

Demand

willingness and ability to purchase a good or service (at all prices)