Unit 4 Economics
Supply and Demand
income effect
• Any increase or
decrease in
consumers’
purchasing power
caused by a change
in price
opportunity cost
What you give up in
time and resources
when you chose to do
one thing over
another.
law of demand
• The inverse
relationship in which
consumers will buy
more of a product at
a lower price and less
of a product at a
higher price.
demand schedule
• A list which shows the
relationship between
the price of a good or
service and the
quantity that
consumers demand.
demand curve
• A graph reflecting the
relationship between
the price of a good or
service and the
quantity that
consumers demand
scarcity
• fundamental
condition of
economics that
results from the
combination of
unlimited wants and
limited resources.
elastic demand
• Exists when a small
change in a good’s
price has a large
impact on the
quantity demanded
inelastic demand
• When a change in
price has little impact
on quantity
demanded
human capital
• Investing in
education, training,
health and values
Law of supply
• The idea that
producers will supply
more product at
higher prices and less
product at lower
prices.
supply
• All of the product a
company makes at
various prices in a
given period of time
market equilibrium
• The price at which
both producers and
consumers are
satisfied.
The term that refers to the tendency of
consumers to buy products of similar quality at
a lower price?
substitution effect
The concept which states that as more units of
a product are consumed, the satisfaction from
consuming each additional unit decrease is
called?
Diminishing marginal
utility
A demand curve only displays a
“snapshot” of a market because…
It represents a specific time period.
The two conditions which make up
demand
• Willing and able to
purchase
• Specific time period
Three things that can affect the
demand for a product are:
1. Income effect
2. Substitution effect
3. Diminishing marginal utility
What are the three qualities of
elastic demand?
1. whether or not it has available
substitutes.
2. whether or not it is a necessity.
3. the portion of the consumers’ income the
product’s cost represents.
Two things that can affect the
supply for a product are:
1. Profit motive
2. Market trends
What are the qualities of elastic
supply?
• Time
• Money
• Availability of resources
Examples:
Elastic: sports memorabilia, paper clips, toys,
Inelastic: gold, oil, nuclear weapons
Why do Governments set prices?
• Minimize supply and demand swings
• To balance inequalities in the market
place.
• To address unaccounted for costs
like pollution.
price ceiling
• Rent control is an example
• Can cause shortages
• A maximum price for a product
price floor
• Minimum wage is an
example
• It can cause a surplus
• It is a minimum price
for a product.