Transcript Supply and Demand

Supply and Demand
Law of Demand
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The rule people will buy more at lower prices
than at higher prices if all other factors are
constant
You must be able, willing, during a given
period of time
The Demand Curve slopes down and to the
right.
Diminishing Marginal Utility
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The principle that as units of a product are
consumed during a given time period, the
additional satisfaction becomes less and less
As price of the product falls, there are income
and substitution effects that encourage
consumption
Income Effect/Substitution
Effect
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The income effect is the increasing or
decreasing prices on the buying power of
income
The substitution effect is the effect of
increasing or decreasing relative prices on
the mix of goods purchased.
Increase in Demand
Consumers’ income may increase
 Consumers attitude may change
 The price of the complimentary product may
decrease
 The price of a substitute product may
increase
DEMAND DECREASES WHEN THE
OPPOSITE OF THESE OCCUR!!
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Supply
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The amount of goods and services that
producers are willing to sell at each specific
price in a given market as a given point in
time.
*** Supply involves the amount that
producers are willing to sell at different
prices; it does not mean that they will be able
to sell the goods at the prices they desire
Law of Supply
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Assuming all things are constant, the price of
a good increases, the quantity supplied of the
good also increases
This is why the Supply Curve slopes upward
and to the right
As with demand, changes in the price of a
product will affect quantity suppliedmovements will occur on the same supply
curve.
Four Factors of production
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Land
Labor
Capital
Entrepreneurship
Measuring production
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Businesses measure how much is produced
during a given time period to make sure they
are not producing to much or to little
Count units instead of dollars
Average product- The number of units of
output produced per unit of input.
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Marginal product- The amount that total
product increases or decreases if one more
unit of an input is used.
The Short Run and Long Run
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The short run is any period during which the
usable amount of at least one input is fixed
The long run is a period during which the
amounts of all inputs used can be changed
Diminishing Marginal
Productivity
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The principle that as more of any variable
input is added to a fixed amount of other
inputs, the rate at which output goes up
becomes less and less.