ECONOMICS STUDY GUIDE: DEMAND AND SUPPLY
change in the number of consumers in the market (population)
- An increase in the population will cause a(n) increase in demand. - A decrease in the population will cause a(n) decrease in demand.
change in the price of related goods
- Complements are goods that you consume together. The price of one and the demand for the other move in same direction(s). - Substitutes are goods you can replace with each other. The price of one and the demand for the other move in opposite direction(s).
change in tastes and preferences
- If you decide you like it, demand will increase (shift to right) - If you decide you hate it, demand will decrease (shift to the left)
change in expectation
- If you expect the price of a good to increase in the future, your demand for it now will increase. - If you expect the price of a good to decrease in the future, your demand for it now will decrease.
a nail salon cuts the price it charges for manicures and more clients come
- MOVEMENT - PRICE CHANGE
Law of Supply
- Tendency of suppliers to offer more of a good at a higher price - holds that other things equal, as the price of a good rises, its quantity supplied will rise, and vice versa - Producers are willing and able to supply products at higher prices than lower prices - Producers produce more output when prices rise because they seek higher profits; supplies are not going to stop producing when prices are high instead, they have an incentive to produce more - Price and quantity have a direct relationship
US incomes decrease by 10%
- change in income - shifts left
creamer goes up in price
- complement - shifts left - demand decreases - creamer is a complement. If the price of creamer increases, quantity demanded decreases. Therefore, demand for coffee decreases (the two go together).
price of sugar decreases
- complement - shifts right - demand increases - If price of sugar decreases, quantity demanded increases. People put sugar in their coffee so demand for coffee will shift to the right.
law of demand
- consumers buy more of a good when its price decreases and less when its price increases - holds that other things equal, as the price of a good or service rises, its quantity demanded falls (vice versa); consumer is willing and able to buy at lower prices rather than higher prices
There is an expectation that the price of the product will soon fall
- demand decreases - change in expectations - Not going to buy now, current demand will decrease because customers are going to way and purchase after price drops which hasn't occurred yet
product now out of fashion (change in taste of buyers)
- demand decreases - change in popular products
prices of complementary goods increases
- demand decreases - change in price of related goods
price of substitute increases
- demand decreases - change in price of related goods (substitutes)
increase in most peoples' income
- demand decreases (shift left) - change in income
population decreases
- demand decreases (shift left) - change in population
product becomes a popular fad (change in taste of buyers)
- demand increase - change in popular prodcuts
There is a fear that the economy will go into a recession where many firms will fail, and unemployment will increase
- demand increases - change in expectations - Stock up on things now cause the products might not be produced in the future
decrease in most peoples' income
- demand increases - change in income
prices of complementary goods decreases
- demand increases - change in price of related goods
price of substitute decreases
- demand increases - quantity demanded increases and demand for the other goods decreases
population increases
- demand increases (shift right) - change in population
consumers think the prices of coffee are going up in the future
- future expectations - shifts right - demand increases - If you expect the price of coffee to increase in the future, you are going to buy more coffee right now (before the price increases)
ben and jerry raise price of ice cream to pay for new ice cream cruise ship
- movement - change in price
adidas increases the price of their most popular running shoe by $15 per pair
- movement - price change
Starbucks increase the price of coffee by 10%
- not a shift; this is a MOVEMENT
10% of the US population is abducted by Aliens
- population - shifts left
under armour factory workers get 5% pay raise
- shift left - cost of production
The City of New York has cut the number of city employees by 10% and sales of big screen televisions falls.
- shift left - demand decreases
Ben and Jerry think the price of ice cream will rise in the future
- shift left (decrease) - Future expectations - a business expects that they can get a higher price in the future, what will happen to supply today? They will be less willing to sell their products today because they will know that if they waited, they could get a higher price so supply today would decrease, shift to the left. (Remember, supply is not the quantity available for sale.)
Ben and Jerrys close 3 factories
- shift left (decrease) - change in number of producers
a tsunami wipes out power to Ben and Jerry's factories
- shift left (decrease) - change in the number of producers
blue bell ice cream closes 3 factories
- shift left (decrease) - change in the number of producers
nike closes 3 factories that make athletic shoes
- shift left (decrease) - change in the number or production
the price of rubber increases
- shift left (decrease) - cost of production
ice cream workers get a 2% raise
- shift left (decrease) - cost of production - costs the producer more so cost of production increases, shifting the supply curve to the left
price of milk increases
- shift left (decrease) - cost of production - if the price of milk increases, it will now cost you more to make ice cream
President Trump announces a 25% tariff on imported Ice Cream and Gelato
- shift left (decrease) - government policy
- The US Census Bureau has announced that there is baby boom in the United States and sales of baby carriages have increased
- shift right - demand increase (3)
- John's Bicycle shop increases the prices of bicycles and sales decreases
- shift right - demand increase (4)
There is an outbreak of the flu and sales of latex gloves skyrocket.
- shift right - demand increases
A chain of department stores extends the hours that stores will remain open and total sales for the chain has increased.
- shift right - demand increases (2)
adidas predicts a decrease of the price of shoes in the future
- shift right (increase) - Future expectations; a business expects that they can get a higher price in the future, what will happen to supply today? They will be less willing to sell their products today because they will know that if they waited, they could get a higher price so supply today would decrease, shift to the left. (Remember, supply is not the quantity available for sale.)
adidas opens 5 new factories in the US
- shift right (increase) - change in the number of producers
lebron james and aaron rodgers open new "king double scoop" ice cream brand
- shift right (increase) - change in the number of producers
nike installs robots to make production of golf shoes cheaper and more efficient
- shift right (increase) - cost of production
nike factory workers take a 10% pay cut in exchange for no layoffs
- shift right (increase) - cost of production; lower costs of production which is good for producers
the US government subsidizes the production of running shoes
- shift right (increase) - government policies; government subsidizing something means the government pays bulk of production costs which makes it cheaper for producers to produce their goods
the prices of sugar decreases by 50%
- shifts right - cost of production
tea goes up in price
- substitute - shifts right - demand increases - Tea is a substitute good. If the price of tea increases, quantity demanded for tea decreases. Therefore, more people will demand coffee because tea is more expensive now.
the price of tea increases significantly
- substitutes - shift right - demand increases - if the price of tea increases, quantity demanded for tea decreases. Therefore, since tea is more expensive, people are going to demand more coffee
scientists discover that coffee can cure the common cold
- tastes/preferences - shift right - demand increases
starbucks reveals a new advertising campaign
- tastes/preferences - shifts right - demand increases
law of diminishing marginal utility
- the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time - the more you buy of ANY GOOD the less satisfaction you get from each new unit consumed - utility = satisfaction
change in income
-Increased income increases demand for "normal goods" -Decreases demand for "inferior goods" - Demand for normal goods will increases if you get a raise. - Demand for normal goods will decrease if you have a decrease in income. - Demand for inferior goods will decrease if you get a raise. - Demand for inferior goods will increase if you get fired.
5 factors that shift the demand curve
1. changes in the prices of related goods or services 2. changes in income 3. changes in tastes 4. changes in expectations 5. changes in the number of consumers
shortage
A situation in which quantity demanded is greater than quantity supplied
surplus
A situation in which quantity supplied is greater than quantity demanded
Ceteris Paribus
a Latin phrase that means "all other things held constant"
What is a movement along the curve?
a change in quantity supplied only caused by change in price
Which of the following will cause a decrease in quantity supplied?
a decrease in today's price of the food or service
the law of supply shows us that price and quantity supplied have:
a direct or positive relationship
demand curve
a graph of the relationship between the price of a good and the quantity demanded
supply curve
a graph of the relationship between the price of a good and the quantity supplied
Which of the following would cause a leftward shift of the supply curve for pizzas?
a significant number of pizzerias closing for business
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
which of the following will cause a rightward shift of the supply curve?
an increase the number of sellers
the supply curve is drawn as:
an upward sloping line
What kind of relationship exists between price and quantity?
inverse (opposite)
a change in today's price of the good/service affects:
quantity supplied
as price decreases
quantity supplied decreases
As price increases
quantity supplied increases
a shift of the supply curve occurs when
something other than today's price changes
quantity demanded
the amount of a good that buyers are willing and able to purchase
quantity supplied
the amount of a good that sellers are willing and able to sell
Which of the following would cause a rightward shift of the supply curve for pizzas?
the development of a machine that can roll, toss and shape the dough into its pizza shape
demand
the different quantities of goods that consumers are willing and able to buy at different prices
If ACME widget manufacturers expects the price of the widgets they sell to decrease in the near future, we can expect:
the supply of ACME widgets to increase or shift to the right
Product Y is a key resource / input used to produce product X. If the price of Y increases, we would expect:
the supply of X to decrease
Product X is a key resource / input used to produce product Y. If the price of X decreases, we would expect:
the supply of Y to increase
a movement along the supply curve occurs when
today's price of the good/ service changes
price quantity
x-axis
price of product
y-axis
