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# Supply and demand review sheet

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• 1. Supply and Demand Review Sheet                      Demand: desire and ability to pay Law of demand: prices fall and quantity demanded goes up (vice versa) Demand Schedules versus market demand schedule Demand Curve versus market demand curve What a term is marginal ________? What does that mean you are measuring? The difference one worker makes, or measuring between one point and the point right before it. Law of diminishing marginal utility: marginal benefit of using each additional unit of a product during a given period will decline Income effect: change in the amount that consumers will buy because the purchasing power of their income changes Substitution effect: a change in the amount that consumers will buy because they buy substitute goods instead Change in quantity demanded versus a change in demand Normal goods: consumers demand more of when income increases Inferior goods: consumers demand less of when income increases 6 factors that cause a change in demand o Income: increased income means buy more; less means less o Complements: products used together o Substitutes: product used instead of another o Consumer expectations: what you think price will do affects how you buy things today o Market size: amount of consumers  Besides moving, what changes market size? o Consumer tastes: what you like, popularity changes quickly Elasticity of demand: a measure of how responsive consumers are to price changes Elastic: quantity demanded changes significantly as prices changes o Examples? Inelastic: quantity demanded changes little as price changes o Gas would be an example of an inelastic good Unit Elastic: right in the middle: elasticity = 1 Factors that determine elasticity o Substitute goods o Proportion of Income o Necessities versus luxury Elasticity Calculated: percentage change in quantity demanded over percentage change in price Total revenue: Price times quantity Supply: ability and willingness to offer goods and services Law of supply: price goes up, quantity supplied goes up; vice versa
• 2.                 Supply schedule versus market supply schedule Supply curve versus market supply curve Marginal product: change in total output by adding another worker Specialization: focusing on a particular aspect of production Increasing returns: marginal product is going up Diminishing returns: marginal product is going down Negative returns: total product is going down/marginal product is negative Fixed costs versus variable costs o Examples of both? Total costs: fixed costs plus variable costs Marginal revenue: money made from the sale of each additional unit of output = price o Change in Total revenue divided by change in total product Profit-maximizing output: level of production where making the most amount of profit Profit: Total revenue – total costs Change in quantity supplied versus change in supply Changes in supply caused by: o Input costs: resources/things that affect the cost of production o Labor productivity: (types of workers) increased productivity decreases costs and increases supply o Technology: better capital will create higher efficiency o Government action  Subsidies  Excise taxes o Producer expectations: the amount producers are willing to and able to supply depends of if they think prices will go up or down o Number of producers: more people making means more stuff being made Elasticity of supply: measure of how producers respond to price changes Elasticity of supply affected by the ease of changing production o Farmer in the beginning of the season: choosing crops o Farmer in the middle of the growing season: crops already chose, can’t change  Elastic supply versus Inelastic supply