Chapter 3 Supply Demand and the Market Process The demand curve law of demand There is a inverse negative relationship b w price and quantity that buyers are willing to purchase DOWNWARD SLOPING as prices increase the quantity demand increase Consumer Surplus Diff b w the maximum amount a consumers are willing to pay and amount they pay area below the demand curve and above the price Demand vs Quantity Demanded Quantity demanded is a movement along the curve This is caused by a change in price of that good RIGHT increase in quan dem LEFT dec in quant dem Change in demand curve shift of the actual curve Caused by change in anything other than the price Inc in demand curve shifts to RIGHT dec in demand shifts to LEFT if the price fell there would be no demand change the quantity would only increase Shifter of Demand 1 change in consumer income 2 change in number of consumers 3 change in price 4 change in expectations 5 change in taste and preference The supply curve law of supply is the direct relationship b w the price of good and amount that suppliers are willing produce UPWARD SLOPING Price increases quantity supplied increases Producer surplus is diff b w the minimum price suppliers are willing to accept and price they actually receive Area above the supply curve but below the price Change in the quantity supplied is the movement along the curve Caused by a change in price of the good inc to the right dec to the left Change in supply is a shift of the actual curve Caused by anything but price Shifts in supply occur when 1 a change in resources price 2 change in technology 3 change in politics and nature 4 change in taxes elasticity inelastic is a change in quantity that is not sensitive in price steep curve elastic changes are sensitive to change in price flatter curves market equilibrium state in which conflicting forces of supply and demand intersect balanced this means its economically efficient no excess supply or demand changes in demand price and quantity move in same direction changes in supply price moves opposite from quantity when they both change Invisible hand principle tendency of people to promote the economic well being accomplished through prices Founded by adam smith
View Full Document
Unlocking...