Supply Demand Notes Unit 1

Demand

Is the quantities that people are willing and able to buy at various prices

   The law of demand

  There is an inverse relationship between in price and quantity demanded

   What causes a change in quantity demanded

  Change in price

   What causes a change in demand

  Change in buyers taste ( Advertising)

  Change in number of buyers ( Population)

  Change in income

  Normal goods- goods that buyers by more of when income rises

   Inferior goods- goods that buyers by less of when income rises

  Change in price of related goods

   Substitute goods- goods that serve roughly the same purpose to buyers

   Complimentary goods- goods that are often consumed together

  Change in expectations

·         Supply

   Is the quantities that producers and sellers are willing and able to produce/sell at various points

   The law of supply

  There is a direct relationship between price and supply

   What causes a change in quantity supplied

  Change in price

   What causes a change in supply?

  Change in weather

  Change in technology

  Change in cost of production

  Change in number of sellers

  Change in taxes or subsidies

  Change in expectations

Eco Notes 5 Unit 1 1/20/15

Eco Notes 5 1/20/15

Expansionary- (growth) the real output in the economy is increasing and unemployment is decreasing

Peak- the real GDP is at its highest point

Contractionary- (recession) the real output in the economy is decreasing and unemployment is increasing

Trough- the lowest point of real GDP

Eco Notes 4 Unit 1 1/16/15

Eco Notes 4 1/16/15

Equilibrium- point at which supply curve and demand curve intersect. Means economy using all resources efficiently.

Shortage QD>QS

Surplus QS>QD

Price Ceiling Government imposed maximum on how high you can be charged for a product or service

Price Floor government imposed minimum on how low a price can be charged on a product or service

Total revenue Price x Quantity

Marginal Revenue- the additional income from selling one more unit of a good

Fixed cost- a cost that does not change no matter how much is produced ex. Mortgage rent etc.

Fixed cost- doesn’t change

TVC= TC- TFC

TC= TFC+ TVC

MC= New TC- Old TC

AFC= TFC/ Quantity

AVC= TVC/Quantity

ATC =AFC + AVC or TC/Quantity

Eco Notes 3 Unit 1 1/12/15

Eco Notes 3 1/12/15

Elasticity of Demand- tells how drastically buyers will cut back or increase demand for a good when price rises or falls

Elastic Demand- (E>1) Demand will change greatly given a small change in price Ex. Wants, movie tickets

Inelastic- (E<1) demand for a product will not change regardless of price Ex. Needs, Gas, milk salt

Unit elastic (E=1)

1-New Quantity – Old Quantity /Old quantity= -.2

2- New price- old price / old price= .5

3- PED- Price Elasticity of Demand

    %change in quantity/ %change in price= .4 <1 inelastic

1-(-.2)

2-.25

3-.8 < 1 inelastic