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Supply and Demand
Review for Test on Thursday
| Define demand | The desire to own something and the ability to pay for it. (You can not have demand if you can't pay for it.) |
| Explain the Law of Demand | Quantity demand goes up, price goes down. Quantity demand goes down, price goes up. (Indirect relationship) |
| Four determinants (effects) of demand | B- buyer (# of buyers) I- income (change) T- taste (preference, popularity) E- expectation R- related goods (compliments and substitutes) |
| What is the substitution effect rule | When price goes up people choose lower priced items or an alternate item. |
| What is the income effect rule | Income always limits spending. When price goes up your income buys less. |
| What is a demand curve | a graphic representation of a demand. |
| What are substitutes | $ = Comparable |
| What are compliments | Two goods that are bought and used together. |
| Define inelastic demand | Good/ service that is NOT responsive to price. |
| Define elastic demand | Good/ service that is responsive to price. |
| Define inferior good | A good that consumers demand less of when their incomes increase |
| Define normal good | A good that consumers demand more of when their incomes increase. |
| Define supply | The amount of goods/ services available at the price the producer is willing to sell it. |
| Define elastic supply | Goods are very responsive to price. |
| Define inelastic supply | Goods are not responsive to price. |
| Define variable | A factor that can change. |
| Define subsidy | A government payment that supports a business or market. |
| What is equilibrium | The point of balance between price and quantity. |
| When does equilibrium occur | When the market for a good is stable. |
| What is disequilibrium | When quantity supplied is not equal to quantity demanded in a market. |
| When does disequilibrium occur | When price and quantity are unbalanced. |
| What is price ceiling | A maximum price that can be legally charged for a good. |
| What is a price floor | A minimum price for a good or service. |
| What is the black market | No government intervention. No controls on price or quantity. Usually illegal. |
| Define voluntary exchange | Interaction between a buyer (consumers) and a seller (producers). |
Created by:
Tay112196
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