Unit 2
supply
demand
Definition: the quantity of a good or service that a consumer or group of consumers are willing and able to purchase at z given price in a given time period
Law of Demand: There is an inverse relationship between price and quantity demanded. EX) when the price goes down for cips, the quantity consumers buy will increase
Factors(reason demand curve is downward)
The substitution effect
The law of diminishing marginal utility
Income effect
Changes in price affect the purchasing power of consumers' income
Changes in price motivate consumers to buy relatively cheaper substitutes goods
As you continue to consume a given product, you will eventually get less additional utility (satisfaction) from each unit you consume.
Factors of shifting the demand curve
Income (Normal goods, inferior goods, and unrelated goods)
Price of related goods (Substitutes and Compliments)
Expectations
Government policy
Demographic change
Taste/ Preferences
Numbers of Consumers
Law of Supply: There is a direct relationship between price and quantity supplied
Factors of shifting the supply curve
Definition: the quantity of goods that producers will produce and sell at a given price over a particular time period, ceteris paribus.
Change in technology
Government involvement (Tax&Subsidies)
Number of Producers
Future expectations
Supply Stock
Price of related goods
Cost of Production
When the price goes up for milk, the quantity producers make will increase. (can make more profit)
