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Supply & Demand :moneybag: :money_mouth_face: (Supply (6 Factors of…
Supply & Demand :moneybag: :money_mouth_face:
Supply
The different quantities of a good that sellers are
willing
and
able
to sell (produce) at different prices
What is the Law of Supply?
There is a **Direct (or positive) rea. b/w price and quantity supplied
As price increases, the quantity producers maker increases
As price falls, the quantity producers make falls
6 Factors of Supply
R
- Resource cost: Prices?Availability of inputs
A
- Alternative production: Natural Disasters/International events
T
- Technology: supply increases
N
- Number of producers: increases in supply
E
- Expectations (Producers)
S
- Subsidy: Government policy- If the gov gives you money
T
Taxes: money is taken away from you from the gov
Demand
Different quantities of goods that consumers are
willing
and
able
to purchase at different prices
Ex: Bill Gates is
able
to purchase a Ferrari, but if he isn't
willing
he has
NO
demand for them
Shifts in Demand
Changes in Demand
Ceteris Paribus - "All other things stay constant"
When the ceteris paribus assumption is dropped movement no longer occurs
Whole graph shifts
A shift means that at the
same price
, more people are
willing
and
able
to purchase
What Causes a Shift in Demand
(
TIMER
)
T
- Taste & preferances
I
- Income: If you have more money demand will increase
M
- Market size (population)
E
- Expectations (consumer expectations): seen in sales
R
- Related goods
Complementary Goods - goods that come together
Substitute Goods- when you substitute another good for a cheaper good
Law of Demand
states there is an
Inverse
rela. b/w price and quantity demands
Why Law of Demand occurs
1.
The Substitution effect
If the price goes up for a product, consumers buy less of that product and more of another substitute product
2.
The income effect
If the price goes down for a product, the
purchasing power
increases for consumers, allowing them to purchase more
3.
The Law of Diminishing Marginal Utility
Utility = Satisfaction
States that as you consume more units of any goods the additional satisfactions from each additional unit will eventually start to decrease
Supply and Demand are put together to determine equilibrium quantity
QS <QD
QD = QS
Surplus is when there is more supply than Demad
Shortage is when you have less than the one thing
QS > QD