economics unit 3 #1: supply and demand, it's the law

describe the different economic concepts that apply to different goods and services

#1: value/utility - in economics, value means the power that goods and services have to exchange other goods and services, i.e. value-in-exchange. if one pen can be exchanged for two pencils, then the value of one pen is equal to two pencils #2: scarcity - mere utility does not create value unless it is scarce. a good or service is scarce (limited) in relation to its demand. all economic goods like a pen, a book, etc. are scarce and have value. but free goods like air do not possess value. thus, goods possessing the quality of scarcity have value #3: transferability - besides the above two characteristics, a good should be transferable from one place to another or from one person to another. thus, a commodity to have value-in-exchange must possess the qualities of utility, scarcity, and transferability. #4: wealth - in economics, wealth is used to describe all things that have value. for a commodity to be called wealth, it must possess utility, scarcity, and transferability. if it lacks even one quality, it cannot be termed as wealth #5: optimization - optimization means the most efficient use of resources subject to certain constraints; finding the maximum or minimum values of a quantity, or finding when these max mins occur. optimization is the determination of the maximization or minimization of an objective function

explain how competition between buyers and sellers affects the price as well as quality and quantity of supply

-competition among sellers lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy -competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them -there's not always a perfect balance between supply and demand. there might be a surplus when supply is higher than demand. when this happens, prices drop -when there is a shortage, prices go up

predict how changes in supply and demand affect price and quantity sold

-if demand increases and supply remains unchanged, then it leads to a higher equilibrium price and higher quantity -if demand decreases and supply remains unchanged, then it leads to a lower equilibrium price and lower quantity

demonstrate how consumer behavior defines and alters demand, and explain the effects of changing demand on supply and productivity

-if the consumer demand is low, then the demand is low, if the consumer demand is high, then the demand is high. the producers rely on the consumer -there might be a surplus when supply is higher than demand. when this happens, prices drop, and productivity slows down because there are too many goods -there might be a surplus when demand is higher than supply. when this happens, prices go up, and productivity increases because there aren't enough goods

demonstrate an understanding of the effects of production and distribution networks on price and productivity

-if the cost of any factor of production—labor, raw materials, equipment—decreases, the quantity that producers are willing (and able) to supply at a given price increases -producers with lower costs will always be able to supply more of a product at a given price than those with higher costs -manufacturers who choose a distribution channel often deliver higher-priced products with lower sales volume. -manufacturers who remove these intermediaries can command higher profit margins as a result

what causes a market failure?

-positive and negative externalities, environmental concerns, lack of public goods, under the provision of merit goods, over the provision of demerit goods, and abuse of monopoly power -when the market doesn't allocate it's resources efficiently

what does supply and demand influence, vice versa?

-supply and demand influence price, price influences supply and demand -this principle is so powerful and so universally accepted among economists that economists call it a law: the law of supply and demand

what is the wealth effect?

-the change in spending that accompanies a change in perceived wealth -usually the wealth effect is positive: spending changes in the same direction as perceived wealth

how is the equilibrium price determined?

-the equilibrium price of a product or service is determined through extensive market research. it can also vary over time -this equilibrium price occurs when the number of customers willing to pay a certain price meets the quantity suppliers are willing to make. when demand = supply

describe the operations of the law of supply and demand

-the law of demand says that at higher prices, buyers will demand less of an economic good. -the law of supply says that at higher prices, sellers will supply more of an economic good. -these two laws interact to determine the actual market prices and volume of goods that are traded on a market

how does the level of scarcity affect the price of a good?

-there's not always a perfect balance between supply and demand. there might be a surplus when supply is higher than demand. when this happens, prices drop -if there's a shortage, prices go up

what is fungibility?

a concept closely related to substitution is fungibility. fungibility means that you can't tell individual units of a good apart

what factor limits consumption

a consumer's budget constraints

to sell something, what does a producer need to do?

a producer takes a resource that's already there and adds value to it

what can the wealth effect be counteracted by?

by decreasing marginal utility

identify and analyze the various noneconomic factors that can influence price

culture; religion; class and family; tradition; the role of individual; socio-political dependencies; the role of government; and the existence of duality in the society

what happens when prices for one good (item) changes?

demand changes for that good and for its substitutes as well

in order to make the most of scarce resources, what must be the focus?

efficiency

what happens if the supply is lower (a shortage) than the demand?

if there's a shortage, prices go up

what are individual goods?

individual goods are used by an individual and can be enjoyed to the exclusion of everyone else

how are supply and demand measured?

just like with supply, demand is measured using the various quantities demanded at each price during a specific time period

what does opportunity cost represent?

opportunity cost represents the cost of putting a scarce resource to one particular use rather than another

in economics, everything that's sold is first...

produced

what are public goods?

public goods are ones that people can't be excluded from enjoying

what is supply?

supply is really the different quantities of a good or service that potential sellers are willing and able to sell at various prices during a specific time period

what is the law of supply and demand?

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

how can the elasticity of a demand for a particular good or service be measured?

the elasticity of demand for a particular good or service can be measured by consumers' responses to changes in the price

what does opportunity cost mean?

the loss of potential gain from other alternatives when one alternative is chosen

what is production?

the process of adding value to a resource

what happens when the supply is higher than the demand?

there's not always a perfect balance between supply and demand. there might be a surplus when supply is higher than demand. when this happens, prices drop.