Chapter 6 Supply and Demand

Shortage

is when the QUANTITY DEMAND is GREATER than the QUANTITY SUPPLY Qd - Qs = shortage -below the equilibrium point when a shortage takes place then the suppliers increase in price lowering the demand to acquire to the equilibrium point

Area of Producer Surplus

area ABOVE the supply curve and BELOW the price a seller actually receives as area increases, the well-being of the producers increase, producers are better off

Area of Consumer Surplus

area BELOW the demand curve and ABOVE the the price consumers actually pay -demand curve shows consumers' willingness to pay

Demand Curve

-visual representation of the law of demand -negatively sloped line -demand curve represents the willingness of consumers to purchase a product of every price

Supply Curve

-visual representation of the law of supply -positive slope due to the direct relationship between the price and the quantity supplied -represents the quantity suppliers are willing to sell at every price

4 steps to analyze changes in Supply and Demand

1 Decide which curve shifts? 2 Which way does it go? 3 Find old equilibrium and new equilibrium? 4 Find the change in Price and Quantity

Substitution Effect

effect that consumers will purchase will purchase more of a cheaper product as something else gets more expensive

Surplus

is when the QUANTITY SUPPLY is GREATER than the QUANTITY DEMANDED Qs-Qd = surplus -above the equilibrium point when a surplus takes place then the suppliers will decrease the price allowing for an increase in demand to then acquire to the equilibrium point

Law of Demand

it is the simple observation that consumers are more willing to purchase products at a cheaper price and vice versa.

Demand Schedule

list of prices and quantities consumers would purchase a product at

Welfare Economics

study of how the distribution of resources affects economic well-being

Equilibrium

Market equilibrium is a market state where the supply in the market is equal to the demand in the market. The equilibrium price is the price of a good or service when the supply of it is equal to the demand for it in the market. When the quantity supply is equal to the quantity demanded

Complement Products

Products that are used together if price of a product goes UP, quantity will go DOWN resulting in the complement's demand curve to shift LEFT if price of a product goes DOWN, quantity will go UP resulting in the complement's demand curve to shift RIGHT For Example, if the price of a printer goes UP, quantity of the printer will go DOWN resulting the the demand curve of ink to shift to the LEFT. because since the price of the printer went up, less people are gonna buy it resulting in less people buying ink.

Substitute Products

Products that can be used instead of each other if price of a product goes UP, quantity goes DOWN resulting in the substitute's demand curve shifting RIGHT if price of a product goes DOWN, quantity goes UP resulting in the substitute's demand curve shifting LEFT For Example, if the price of Coke goes UP, the quantity goes DOWN resulting in Sprites demand curve to shift to the RIGHT. because since the price of coke is going up more people are gonna want to get sprite

Inferior Goods

goods that when income RISES, it will cause a DECREASE in demand shifting the curve to the LEFT when income DECLINES, it will cause an INCREASE in demand shifting the demand curve to the RIGHT. For Example, when income increases, more people are gonna be willing to buy a more luxury car so the demand for the cheap car will decrease shifting the curve to the left.

Normal Goods

goods that when income RISES, it will cause an INCREASE in demand shifting the demand curve to the RIGHT. when income DECLINES, it will cause a DECREASE in demand shifting the demand curve to the LEFT. For Example, When income increases, more people will be able to afford a laptop so the demand will increase shifting the curve to the right.

Change in Consumer Taste

if consumer tastes, INCREASE, the demand curve will shift to the RIGHT if consumer tastes, DECREASE, the demand curve will shift to the LEFT -more people start liking the product resulting in more sales allowing the curve to shift to the right

Change in Expectations of Future Prices

if consumers expect prices to INCREASE in the future, demand today will decrease allowing the curve to shift to the RIGHT if consumers expect prices to DECREASE in the future, demand today will increase allowing the curve to shift to the LEFT -if consumers expect gas prices to increase in the future, they tend to get more or a high demand today before the prices increase

Change in the number of buyers

if number of buyers INCREASE, the demand curve will shift to the RIGHT if number of buyers DECREASE, the demand curve will shift to the LEFT -more people want to buy, so they make more of a product

Change of input prices

if price of an input item INCREASES, cost of production will INCREASE resulting the supply curve to shit to the LEFT if price of an input item DECREASES, cost of production will DECREASE resulting the supply curve to shift to the RIGHT -for example if the price of rice INCREASES, then the price of making a bowl will INCREASE resulting in the supply curve to shift to the LEFT because it requires more money to make allowing them to make less of a product

Change in expectations of future prices

if sellers expect the price to INCREASE in the future, then they will make less of a product resulting in the supply curve to shift to the LEFT if sellers expect the price to DECREASE in the future, then they will make more of a product resulting in the supply curve to shift to the RIGHT its because if prices will INCREASE in the future then they wanna make less of a product to be able to sell less at a lesser price and be able then to sell later on if the price is expected to DECREASE in the future then they are gonna want to make more as soon as possible to sell it at the best price now shifting the graph to the RIGHT

Change in number of sellers

if the number of firms/sellers INCREASES, then the supply curve will shift to the RIGHT if the number of firms/sellers DECREASES, then the supply curve will shift to the LEFT -for example, if there are more seller then there must be an increase of supply to be able to distribute and sell products to those sellers. If more apple stores are opened, then their supply curve will shift to the right because the suppliers will have to make more product to satisfy the new sellers

Change in Technology

if there is an INCREASE in technology, then workers can be more productive allowing the supply curve to shift to the RIGHT for example, when ford came across the assembly line, "technology INCREASED," allowing them to make more of a product simpler and cheaper so the supply curve shifted to the RIGHT

Consumer Surplus

measurement of consumers' well-being -difference between the price a consumer is willing to pay and what they actually pay

Producer Surplus

measurement of producers' well-being - difference between the price a seller actually receives and the cost of production -supply curve represents the cost of production

Income Effect

observation that as prices rise, consumers' income(purchasing power) falls, so therefore causing consumers to purchase less of a product

Change in Quantity demand

only caused by a change in the product's own price

Change in demand

people want more or less of a product

Law of Supply

very simple observation that suppliers are more willing to sell a product at a higher price and vice versa