1. Topic 3 Supply and demand
Mr. Kallusingh

2. Law of supply and demand
Law of Demand- the quantity demanded of a good or service varies inversely with the price; if price goes up demand goes down or if price goes down demand goes up
Law of Supply- the principle that suppliers will offer more at higher prices and less for sale at lower prices

3. Determinants of Demand
Income Effect- change in quantity demanded because of a change in price that alters consumers real income
Substitution Effect- change in quantity demanded because of the change in relative price of the product; concert vs. cd

4. Determinants of Demand
Consumer Income- the more money a person makes, the more likely they will become to spend it
Consumer Tastes- can change due to advertising, news reports, fashion trends, new products, weather seasons, etc
Complements- if computer prices go down more software is purchased
Substitutes- if butter price goes up people buy margarine

5. Determinants of supply
Cost of Inputs- if cost of producing goes down expect to see more products, cost goes up less products
Productivity- if workers work more efficient then expect more product as well as the inverse
Technology- new machine, chemical, or process can increase the amount supplied

6. Determinants of supply
Taxes and Subsidies- if taxes go up cost goes up production goes down and the inverse; if the government provides subsidies to a company their production should increase because the cost of producing has gone down and the inverse
Government Regulations- usually tighter government regulations supply goes down and the inverse

7. Price Elasticity
A measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price
Elastic- is when there is a drastic change due to a small change, supply or demand
Inelastic- is when the change is small or equal, supply or demand

8. Market equilibrium
A situation in which prices are relatively stable and the quantity of goods or services supplied are equal to the quantity demanded

9. Cost of Production
Fixed Cost- the cost a business incurs even if it remains idle; rent, taxes, salaries, cost of maintenance, etc
Variable Cost- cost that changes when a business rate or output changes; price of raw materials or changes in labor prices
Marginal Cost- the cost of producing one more item; can be based on materials or labor
Total Cost- the sum of fixed and variable cost

10. Price Controls
Price Ceiling- the maximum legal price that can be charged for a single product
Price Floor- the lowest legal price that can be paid for a good or service

11. Marginal Cost analysis
Is when a company determines how much more to produce in order to make the most profit
The marginal cost the amount to produce one more unit and the marginal benefit/ revenue is the amount made by that one more unit
Profit-maximizing quantity of output is when the marginal cost and marginal revenue are equal