Unit 4 Supply and Demand Economics

Unit 4 Economics
Supply and Demand
income effect
• Any increase or
decrease in
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
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
• 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
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
• 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
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
Diminishing marginal
A demand curve only displays a
“snapshot” of a market because…
It represents a specific time period.
The two conditions which make up
• Willing and able to
• 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
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
• Time
• Money
• Availability of resources
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
• 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
• It can cause a surplus
• It is a minimum price
for a product.