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In a market economy, _______ and ________ determine the prices of most doos and the quantities produced.
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The interaction between the buyers and sellers lead to an __________.
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12th Economics
Understanding how Markets Work: Supply and Demand
| Question | Answer |
|---|---|
| In a market economy, _______ and ________ determine the prices of most doos and the quantities produced. | buyers sellers |
| The interaction between the buyers and sellers lead to an __________. | agreement |
| demand | the desire to own something and the ability to pay for it |
| law of demand | consumers buy more of a good when its price decreases & less when its price increases |
| quantity demanded is not equal to | demand |
| the law of demand is the result of 2 behavior patterns | substitution effect income effect |
| substitution effect | when consumers react to an increase in price by pruchasing other goods |
| income effect | a change caused by an increase in price that results in less purchases |
| purchasing power | the amount of goods that a unit of currency can buy at a given point in time |
| demand schedule | a table that shows quantity demanded at each price |
| demand curve | a graph that shows quantity demanded at each price |
| demand schedules and demand curves are important because | they predict how people will change their buying habits when a price of a produt rises or falls |
| several _______ can change the demand for a good at any price | factors |
| a change in demand causes the entire curve to | shift |
| Veblen goods (luxury goods) | demand increases as the price increases/high quality, exclusive, status symbol |
| Ex. of Veblen goods | Supreme, L.V. |
| do any goods not follow the law of demand? | Veblen goods expectation of future prices emergencies |
| ex. of emergencies | war, famine, pandemic |
| determinants | refers to something else |
| a ______ shows a change in demand | shift |
| at every price consumers buy a different _______ than they did before | amount |
| what causes a shift in the demand curve? | determinants (TONIE) |
| T----Tastes & Preferences | whether people like a good more or less; EX: Valentine's Day---the demand for roses increases as people "like" roses more |
| O----Other Goods | when the demand for 1 good affects the demand on another good EX: peanut butter and jelly --compliments-----ski boots and skis --substitutes-----snow board |
| N----Number of Buyers | changes in population; when there are more buyers in a market, demand increases; EX: Austin, TX |
| I----Income | affects demand for goods/when income changes, demand changes |
| normal goods | goods consumers demand more of when income increases |
| inferior goods | income increases caused demand for these to fall; EX: Generic brands, used cars |
| E----Expectations | when people expect a price increase in the future, the demand changes today |
| current demand for goods is directly related to their______? | future prices |
| as prices ______, so will demand; as prices _______, so will demand; | rise fall |
| elasticity of demand | 1) a measure of how consumers react to a change in price 2) a measure of how sensitive quantity demanded is to that change in price |
| inelastic goods | price change has little impact on quantity demanded; quantity demanded is insensitive to a change in price; goods that have no substitutes and are often necessities |
| example of inelastic goods | gas, necessities, medicine, staple foods |
| elastic goods | a rise or fall in price greatly affects the amount people are willing to buy; things we want but don't need |
| example of elastic goods | luxury items, items that have many substitutes |
| understanding supply: goals | 1) understand the law of supply 2) interpret a supply graph and schedule 3) explain elasticity of supply |
| supply | the amount of goods available; the quantity of goods a business is willing and able to sell at various prices |
| quantity supplied | amount of a good offered for sale at a specific price |
| law of supply | as prices go up, quantity supplied goes up; as prices go down, quantity supplied goes down |
| price | what a business makes from selling a product |
| profit incintive | motivates people in the market; motivates to sell |
| who creates the law of supply? | increased production market entry |
| increased production | individual firms changing their level of production |
| market entry | firms entering or exiting the market |
| supply schedule | shows the relationship between price and quantity supplied for a specific good |
| elasticity of supply | the measure of the way suppliers react to a change in price |
| ______ is a factor that determines whether a good will be elastic or inelastic | time |
| in the short run, a firm cannot easily change its _________ levels drasticly, so supply is more _________ | output inelastic |
| in the long run, firms are more _________ so supply is more _______ | flexible elastic |
| price does not change supply... | it changes quantity supplied |
| a change in supply is caused by | a change in determinants |
| changes in supply: what affects it? | 1) # of sellers in a market 2) level of technology used in a a goods production 3) the prices of inputs used to produce a good |
| changes in supply: what affects it? | 4) the amount of gov't regulation in a market 5) the price of other goods sellers could produce 6) the expectations among producers of future prices |
| # of sellers in a market--- | if more sellers enter the market then supply will increase |
| level of technology used in a goods production | reduce production cost increase profit create a higher supply |
| the prices of inputs used to produce a good--- | input--raw materials, labor, machinery |
| excise tax | a tax on the production and sale of a good; ex: alcohol, tobacco, gas |
| subsidie | gov't payment that supports a business or market |
| example of the price of other goods sellers could produce | change product or crop |
| the expectations among producers of future prices | hold inventory till price goes up |
| equilibrium | where supply meets demand |
| equilibrium price | where quantity supplied equals quantity demanded; a balance between price and quantity |
| equilibrium quantity | the quantity supplied and demanded at equilibrium prices |
| equilibrium | a natural outcome of the free market; the market for a good is stable |
| price communicates through the | market |
| disequilibrium | when market price or quantity supplied is anywhere but equilibrium; quantity supplied isn't equal to quantity demanded |
| shortage | at current price, quantity demanded is greater than quantity supplied; ex: toilet paper during covid |
| surplus | when quantity supplied is greater than quantity demanded at current prices |
| price floor | gov't says min. price on a good or service; ex: wages |
| price ceiling | gov't says max. price on a good or service; ex: insulin |
Created by:
wellis76
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