Economics

Market Supply

The market supply is the total amount of a good or service all producers are willing to provide at the set of relative prices during a period of time.

Substitutes

Two goods are substitutes if an increase in the price of one causes an increase in demand for the other. This is because one can be replaced with the other. The opposite is true. Example: Pizza and Burritos. An increase in the price of pizza, increases demand for burritos, shifting burrito's demand curve to the right.

4 factors that affect Elasticity

1. Availability of Substitutes- Goods that have many substitutes are more elastic because it is easy for consumers to buy a substitute instead if the price goes up. Goods that have few or no substitutes are less elastic because there aren't many, if any, other options for consumers to buy instead if the price goes up. 2. Relative Importance- the value of an independent, one-unit increase in a trait. Calculating economic weights is then a mathematical method for determining the relative importance. 3. Necessities vs. Luxuries- A luxury good is a good for which demand increases as income rises, compared to a "necessity good" for which demand does not increase as income rises and a necessity good is a type of normal good. Like any other normal good, when income rises, demand rises. Necessities become more inelastic because they're valued more and when people need a toothbrush or medication (necessities), they're more likely to buy those items instead of a Mink Coat(elastic). 4. Change Over Time- When price changes, consumers need time to change their spending routine/habits. Products become inelastic because if prices increase, the consumer will change their mind about buying that product. Depending if price increases or decreases on a product.

Inferior Good

Any good that decreases in demand when income increases, because it is only bought to be the affordable alternative to the more expensive preferred good/service.

Normal Good

Any good that increases in demand when income increases, because people want more.

Demand Shifter #3 (Consumer Tastes and Preferences)

Anything that causes a shift in tastes toward a good will increase demand for that good and shift its demand curve to the right. A decrease in popularity would shift the demand curve left. Example: Gluten free diets are currently popular. This has caused the demand for wheat pasta to decrease while the demand for rice and potatoes has increased. Defined as the subjective/individual tastes, as measured by utility, of various goods. Preferences are independent of income and prices.

Price Ceiling

Government-imposed price control, or limit, on how high a price is changed for a product. Governments use price ceilings to protect consumers from problems that could make commodities expensive.

Does Price cause the Supply Curve to shift?

If price changes, it's just a movement along the S curve. There is no change in supply, just quantity supplied. A change in any condition that isn't the price, shifts the S curve; No.

Complements

Two goods are complements if an increase in the price of one causes a fall in demand for the other. This is because these goods are often used together. The opposite is true. Example: Computers and Software - If the price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left. Other examples: college tuition and textbooks, bagels and cream cheese, eggs and bacon

What is the difference between Demand and Quantity Demanded?

A change in quantity demanded represents a movement along the current demand curve, while a change in demand represents a shift in the entire demand curve.

Variable Cost

A cost that varies with the level of output

Demand Shifter #3 (Prices of Related Goods)

A decrease in demand means that consumers plan to purchase less of the good at each possible price. The price of related goods is another factor of affecting the demand curve. Related goods are classified as either substitutes or complements.

Supply Shifter #1 (Input Cost)

A fall in input prices makes production more profitable at each output price, so firms supply a larger quantity at each price, and the S curve shifts to the right. If the input prices go down, that reduces the input cost and shifts the curve to the right, it's going to affect the prices. Everything goes down, willing to supply more. Examples of input costs: wages for employees, prices of raw materials.

Fixed Cost

A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any business activity.

Elasticity of Demand

A measure of how consumers react to a change in price.

Shortage

A situation where the market demand for a commodity greater than its market supply, causing the market price to rise.

Supply Shifter #4 (# of Sellers)

An increase in the number of sellers increases the quantity supplied at each price, shifting S curve to the right. Similar to number of buyers. Ex: New businesses entering the market. How many different sellers you have in the market. Shifts the demand curve to the right. Examples include roller skating rinks, bowling alleys and arcades.

Equilibrium

Balance in the market. Also the point at which supply equals demand for a product, with the equilibrium price existing where the supply and demand curve intersect.

Supply Shifter #5 (Producer Expectations)

In general, sellers may adjust supply when their expectations of future prices change. Changes what they do with the supply curve today. Expect a stronger economy, hold onto their goods while supply curve shifts the left. If sellers expect prices to increase later, they will hold goods now, shifting S curve to the left. If sellers expect prices to decrease later, they will sell more goods now, shifting S curve to the right. Example: Events in the Middle East lead to expectations of higher oil prices. In response, owners of Texas oilfields reduce supply now, save some inventory to sell.

Demand Shifter #1 (Number of Buyers)

Increase in # of buyers increases quantity demanded at each price, shifts Demand curve to the right. This is caused by a change in population or by customers entering/leaving the market because the product does more/less.

Individual Supply

Individual supply is the supply of an individual producer at each price.

Does the Demand Curve get affected by price?

No

Disequilibrium

No balance in the market. Lack of stability, especially in relation to supply, demand and prices.

Demand Shifter #5 (Consumer Expectations)

People's expectations about the future of the economy affect consumers' buying decisions now. Expectations of an increased price of a good/service in the future or of a stronger economy will shift the demand curve to the right for that good/service now. Expectations of a decreased price of a good/service in the future or of a weaker economy will shift the demand curve to the left for that good/service now. Examples - If people expect their incomes to rise soon, their demand for meals at expensive restaurants may increase now. If the economy sours and people worry about their future job security, demand for new cars may fall now.

Price Floor

Price minimum (market for unskilled workers) - Lowest legal price a commodity can be sold at. Used by the government to prevent prices from being too low. For a price floor to be effective , it must be set above the equilibrium price.

Supply Shifter #2 (Government Influences)

Subsidies - a government payment that supports a business or market. Shifts S curve to the right. Excise Taxes - a tax on the production or sale of a good. Shifts S curve to the left. The government can shift supply curves. Regulation - government intervention that affects the price, quantity, or quality of a good. Shifts S curve to the left.

What is the difference between Supply and Quantity Supplied?

Supply - The amount of goods available at each particular price (supply curve). Quantity Supplied- The quantity supplied of any good is the amount that sellers are willing and able to sell at a particular price. Given any one particular price.

Supply Shifter #3 (Technology)

Technology determines how many inputs are required to produce a unit of output. Only shifter and demand and supply. A technological improvement improves efficiency and reduces cost of production, shifting S curve to the right. Ex: The invention of the combine allowed farmers to harvest crops more efficiently (many less workers needed), leading to a less costly operation, shifting the S curve to the right.

Law of Demand

The claim that the quantity demanded of a good falls when the price of the good rises, other things equal. (inverse relationship between price and quantity demanded).

Law of Supply

The claim that the quantity supplied of a good rises when the price of the good rises, other things equal. An increase in price results in an increase in quantity supplied.The law of supply states that a higher price leads to a higher quantity supplied and that a lower price leads to a lower quantity supplied.

Individual Demand

The quantity demanded by one person at each price.

Market Demand

The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price.

Surplus

The quantity of a good or service supplied is more than the quantity demanded, and the price is above the equilibrium level based on the ply and the demand.