Supply and Demand

Demand Law of Demand: economic rule which states that the quantity demanded, and price move in opposite directions As price goes , quantity demanded goes

Supply Law of Supply: Economic rule which states that an increase in supply leads to a decrease in price while a decrease in supply leads to an increase in price.

Law of Diminishing Marginal Utility Rule stating that the additional satisfaction a consumer gets from purchasing one or more units of a product will be less with each one purchased Ex: Season tickets vs. one time purchase Consumers deal with this phenomenon by consuming a variety of goods rather than lots of one good.

Real Income Effect Rule stating that individuals cannot keep buying the same quantity of a product if its price rises and their income stays the same Ex: Groceries, Gasoline Also works in reverse If price decreases and income remains the same, purchasing power is increased, consumer will likely buy more of the product

Complimentary vs. Substitute Complimentary Goods- raw goods that are related in an inverse fashion to other goods Examples- Gas/Oil, Peanut Butter/Jelly Substitute Goods- Goods that are in competition. Examples- Butter/Margarine Both types of goods are in a direct relationship.

Substitution Effect The economic principle stating that if two items satisfy the same need and the price of one rises, people will buy the other Ex: Coke/Pepsi

Demand Curve A line plotted on a graph showing the quantity demanded of a good or service at each possible price

D

Supply Curve A line plotted on a graph that shows the quantities supplied of a good or service at each possible price

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Equilibrium Price Price of a product or service at which the amount producers are willing to supply is equal to the amount consumers are willing to buy On a graph it is where the supply and demand curves intersect

Shortage and Surplus Shortage- Quantity demanded is greater than the quantity supplied Examples- Wii and Xbox were introduced Surplus- When supply is greater than demand Examples- As seen on TV products