Economics Ch. 4: Laws of Supply and Demand

Demand Schedule:

A table or list of the prices and corresponding quantities demanded of a particular good or service.

Law of Demand states that

As the price of product increases, the quantity of the product that people are willing to and can purchase decreases CETERIS PARIBUS. which means that nothing else changes (consumer's taste, income,etc) or everything else stays equal.

How do Number of Producers affect the supply curve?

Increase the Supply so the supply curve will shift to the right.

What happens to the demand for DVDs if the price of movie tickets increases?

Increase.

Market demand increases with increasing number of ...... and why?

Individuals because more individuals with more income to spend will create greater demand for goods and services.

What are some problems that occur with bartering?

It depends upon a MUTUAL COINCIDENCE OF WANTS. Each party must be interested in the other party's goods. Incurs high transaction costs as the traders spend time and money in search for each other.

Why is money used in trade?

It is used to facilitate exchange in the market because everybody recognizes its value.

What does Change in quantity demanded mean or involve?:

It means change in the quantity demanded of a particular good or service due to price change which will involve movement ALONG the demand curve

What would happen to the demand for tennis balls if the price of tennis rackets increases?

It will decrease - shift to the left (moves inward)

Different types of Market (like scale wise - don't think products and resources market)

Local (Dentist), Regional (L.A. advertisements), National (Bank of America, etc) and International (such as the internet)

Mnemonic for Non-Price Determinants of demands are:

N: Number of Buyers O: Other Goods (Substitutes/Complements); (Price of them) T: Tastes I: Income E: Expectations

Where the demand and supply curves intersect gives you what and what?

The equilibrium price and equilibrium quantity.

Real-life examples of the Law of Demand

1) Clearance Sales 2) Purchasing in bulk quantities like at Costco; because unit price (like a group of cans of coca cola) is lower than single item price.

Demand Curve - Describe the different components

1) Price (independent variable) goes on the vertical axis. 2) Quantity per unit of time (dependent variable) is on the horizontal axis. 3) Downward-sloping because of the inverse (negative) relationship between price and quantity demanded (law of demand).

Examples of Complement Products (6)

1. cameras and film or memory cards, 2. bread and butter, 3. shoes and socks, 4. DVDs and DVD players, 5. Sushi and wasabi/soy sauce 6. Cars and Gas

Change in demand:

A change (an increase or a decrease) in the NON-PRICE determinants of demand which will cause a shift inwards or outwards (left or right respectively); in other words we have a new demand curve.

Market Demand Curve is

A demand curve obtained by adding up all of the individuals' demand curves (exercise in class).

We say that the market ...... at equilibrium?

Clears; because all the quantities of the good produced by the seller have been purchased by the consumers.

What causes equilibrium price to change?

Equilibrium price changes only when demand and/or supply changes (or shifts) ( for instance when the determinants of demand or supply change).

Barter

Exchanging goods directly without money

Complements

Goods or services that are used together If the price of a complement increase, the demand for it and for the complement product will both decrease.

Substitutes. Examples (4)

Goods that can be used in place of each other Examples: Xbox and Playstation; Crest vs Colgate toothpaste; Ford vs Chevy for Cars, Dvds vs Movie Tickets

Elaborate on the effect of Cost of Inputs/Resources on the supply curve:

If price of the factors of production increase, then there is a decrease in the supply and supply curve shifts to the left.

Give an example of how expectations about future prices, income or events affect consumer demand.

If you expect the price of gas to go up to $6.00/gallon at midnight, what would you do this afternoon? Get Gas.

What determines demand? In other words what are the determinants of demand? How do they affect movement in the demand curve?

Non-price determinants of demands are no - tie: causes the demand curve to shift outward or inward (outward if any of the determinants increase and vise versa)

What happens to the demand for goods/services in previously non-developed areas where new houses are being built? (Corona, Riverside, Fontucky).

Numbers of people and hence buyers increase in the area which will increase the demand for goods and services / increase Market demand which is the sum of demand of all individuals

Market (2 definitions) - It is not necessarily a .....

Place where there is potential for trade to occur. A market is a place where buyers and sellers come together and set prices and quantities Not necessarily a physical location.

Given both the supply and demand curves on the graph please remember that:

Please note that the determinants of demand DO NOT shift the supply curve and same applies for price determinants of supply - they don't affect the demand curve.

Difference between shortage and scarcity:

Shortage is different from scarcity. Shortage is a problem of price; market price is lower than equilibrium price; Scarcity is in the basic definition of economics means we don't have enough resources and hence we can't produce or utilize goods/services as much as we like.

Elaborate on the effect of price of Related Goods/Services (e.g.) substitutes, complements (give examples if necessary) ON THE SUPPLY OF the involved goods?

Substitutes: if you're a farmer and you can produce both corn and soy and the price of the corn increases, then you'll want to supply MORE CORN and LESS SOY. Complements: When we produce oil from the ground, we also get natural gas and water come out. If price of oil goes up, then it will increase the price of its compliments.

If market price is greater than equilibrium price then we have a: (shortage, surplus. etc).

Surplus

Mnemonic for Non-Price Determinants of Supply

TENPC: Technology/Productivity Expectations (price/tastes) Number of Producers Price of Related Goods/Services Cost of Inputs/Resources

Demand Schedule

Table with two columns: a list of prices and corresponding quantities demanded of a particular good or service.

What's the non-price determinant of demand that companies try to maniupate? Through what? Synonyms to it?

Taste; Advertisements; Synonyms: Trends, preferences, likes etc....

How does technology affect the supply curve?

Technology increases efficiency, lower labor costs so it increases the supply and moves the supply curve to the right.

Quantity Demanded

The amount of good and/or service people are willing to buy and able to purchase at a specific price - one point in the demand curve.

The Demand Curve shows

The amount of product people are willing and can purchase at every possible price.

Describe the Supply Curve (compare with the demand curve; talk about the graph in general):

The graph in general shows the quantity supplied on the x axis and the price on the y axis. Both the demand and supply curves are straight lines. In contrast to the demand curve, the supply curve is upward sloping curve that shows how when the price of a particular good or service increases, the amount supplied increases. It can also be thought of that as the demand of the good increases, sellers can increase the price as they increase the quantity to meet the increasing demand.

What's a normal/ inferior good. Give examples

When income increases, demand (notice we say demand not quantity demanded bec. all the quantity demanded will change at every possible price) for that good increases. (alcohol, houses) When income decreases, demand for that good decreases. (used cars, cheap stuff, etc).

What is a Change in Demand.

When one of the determinants of demand change, the ceteris paribus assumption has been violated and we must draw a new demand curve (shift).

What does Change in Supply mean?:

When one of the determinants of supply changes, it causes the supply curve to shift to the left or right (inward or outward respectively).

Describe our movement in the demand curve when the price changes?

Whenever the price changes, we MOVE ALONG the demand curve to the new quantity demanded

Change in Quantity Supplied results from what factor, what happens when this factor increases/decreases? what's really important to remember:

a change in price; If the price increases, we move along the curve to the right; If the price decreases, we move along down the curve to the left. No shift, no shift, no shift!!

Surpluses lead to:

a decrease in the price and quantity supplied and increases in quantity demanded (see graph in PPT slides if necessary)

Productivity:

amount of output produced per worker.

In contrast to surpluses, shortages lead to:

an increases in price and quantity supplied and decreases in quantity demanded (notice we don't say decrease in demand because that implies a shift - see PPT slides as necessary.

Law of Supply:

as price increases, the quantity supplied increases, ceteris paribus.

If the market price is not the same as the equilibrium price, we will have a situation of:

disequilibrium.

How do Expectations affect the supply curve:

if the producers expect price to increase in the future, they will decrease they supply in the current time and it will shift to the left.

Disequilibrium:

is a point at which quantity demanded and quantity supplied are not equal at a particular price.

Supply (Definition, synonyms):

is the amount of a good or service that producers/sellers are willing and able to offer for sale at every possible price during a period of time, ceteris paribus. Synonymous with supply curve

Demand (Definition):

is the amount of a product people are willing and able to purchase at every possible price. (The entire demand curve).

Quantity Supplied (compare with supply):

is the amount producers are willing and able to offer for sale at a SPECIFIC price (unlike the supply or supply curve it is one point on the supply curve - a single combination of price and quantity).

Equilibrium Price:

occurs where the supply and demand curves intersect. It is the price at which quantity demanded and quantity supplied are equal.

When one of the determinants changes and causes an increase in demand, the demand curve shifts to the .... Give examples

right .... in other words outwards. Increase in 1) income 2) # of buyers 3) taste 4) price of a substitute or Decrease in 1) Price of compliment

If market price is less than equilibrium price then we have a: (shortage, surplus, etc?)

shortage.

When not in equilibrium:

the price and quantity demanded and/or quantity supplied change until a new equilibrium is established and the market clears (study the graphs in PPT slide as necessary).

How to calculate the Market Demand/Supply:

the quantities each producer/consumer supplies/demands at each price are added together.

When a determinant changes and causes an increase in supply, the supply curve shifts to:

the right.

When Demand Curve shifts:

we have a new equilibrium price and a new equilibrium quantity.