Quantity Demanded
The amount of a good or service that consumers are willing and able to buy at a specific price
Demand Schedule
Shows how much of something consumers in a market are able and willing to buy at various prices
Demand Curve
Shows the relationship between price and quantity that buyers are willing and able to buy
Market Demand
The sum of all the individual quantities demanded in a market
Law of diminishing marginal utility
Tells us that with most goods and services, the more we have already consumed, the less satisfaction we are likely to get from consuming yet another additional unit
Change in quantity demanded
Caused when consumers buy more in response to a decrease in price or less in response to an increase in price, the quantity demanded is said to move "move along the demand curve
Change in demand
Occurs when quantities demanded increase or decrease at all prices
Demand Shifters
Cause a change in demand for a good or service.
Changes in income
Generally, an increase in income increases people's demand fore goods and services and vice versa
Changes in the number of consumers
A change in the number of consumers can cause market demand to shift
Changes in consumer tastes and preferences
Consumers do not necessarily buy the same products year after year. Advertising can play a powerful role in shaping consumer preferences
Changes in consumer expectations
Prices don't actually have to rise or fall to cause consumers to change their behavior. Consumers may decide to buy or not to buy based on the expectation of a price change
Changes in the price of substitute goods
A change in the price of one product in a pair of substitute goods can cause the demand curve for the other good to shift
Changes in the price of complimentary goods
A complementary good is a product that is consumed along with some other product
Quantity supplied
The amount of a good or service that producers are willing and able to offer for sale at a specific price
Supply schedule
A table that shows the quantities supplied at different prices in a market
Supply curve
Shows the relationship between the price and the quantity that producers are willing and able to supply
Market supply
The sum of all the individual quantities supplied
Change in quantity supplied
The only factor that causes a change in quantity supplied is price
Change in supply
Causes the entire supply curve to shift to a new position
Supply shifters
Cause an increase or a decrease in supply at every point along a supply curve
Changes in the cost of inputs
Any change in the cost of a factor of production-land, labor, or capital-will result in a change in the market supply of a product
Changes in the number of producers
Another factor that affects supply is the number of producers in a market
Changes in conditions due to natural disasters or international events
Natural disasters such as hurricanes, floods, and wildfires can decrease supply
Changes in technology
Technological advances can reduce the amount of labor needed to produce a good, thereby lowering costs and increasing productivity
Changes in producer expectations
Producers often make supply decisions based on the expectation that prices will rise or fall
Changes in government policy
Governments can directly affect a supply in two ways. One is by offering producers a subsidy-cash payment aimed at helping a producer to continue to operate. Second, is excise tax-tax on the manufacture or sale of a good
Elasticity of demand
Measure of consumers sensitivity to price changes
Availability of substitutes
Demand for products that have close substitutes tends to be elastic
Price relative to income
Consumers are more responsive to changes in price when buying "big ticket" items, which eat up more income, than when making minor purchases
Necessities versus luxuries
When a product is perceived as a necessity, demand for it tends to be highly inelastic
Time needed to adjust to a price change
Elasticity of a demand can change over time
Elasticity of supply
Measure of the sensitivity of producers to a change in price
Supply chain
The network of people, organizations, and activities involved in supplying goods and services to consumers
Availability of inputs
When inputs are readily available for use
Mobility of inputs
The ease with which inputs and products move through the supply chain also affects elasticity
Storage capacity
How easy it is to store products as they move through the supply chain has an impact on elasticity as well
Time needed to adjust to a price change
The supply of many products is inelastic when the price actually changes, but it may become more elastic