1. Chapter 4,5,6,7 Supply and Demand

2. Demand willingness and ability to purchase

3. Law of Demand principle stating that when prices are high less will be demanded and when prices are low; more will be demanded ex. Ice cream – when it is expensive, we don’t buy it. When it is cheap; we stock up. This is from the viewpoint of the consumer! Price  - Demand  Price  - Demand  The arrows are moving in different directions. Law of demand = different directions = both start with D!!!)

4. Demand Schedule Table that shows the quantity demanded at every price QuantityPrice 3004 2005 9010 4515 3020 25

5. Demand Curve Downward sloping graph showing the quantity demanded at every possible price in the market

6. Changes in Demand Curve Income effect – Change in quantity demanded because of a change in the consumer’s real income when the price of a commodity changes Substitution effect – a change in price = a relative change in price compared to other products  consumers will buy it instead of something else

7. Changes in Demand Caused by: Consumer income Consumer tastes Price on relate products

8. Increase in Demand – Shifts Right

9. Substitutes Goods or services that can be used in place of one another ex. Tape/glue

10. Complements Goods or services when used together increase in usefulness or value ex. Mashed potatoes and gravy. Peanut butter and fluff…

11. Marginal utility Marginal always means extra. Utility is usefulness or satisfaction. So, marginal utility = extra usefulness Marginal product - extra output (THIS DOES NOT MEAN SURPLUS)

12. Principle of Diminishing Marginal Utility Observation that people receive less and less satisfaction for every additional unit of a product consumed. A classmate ate chocolate chip cookies until he didn’t want anymore. This student paid for every cookie he ate. The amount he paid decreased as he continued to eat the cookies. This illustrated the point of decreasing SATISFACTION!

13. Paradoxical Demand Where there is a high demand for a product or where the demand for a product increases even though the price for that product increases Contradiction to the law of demand because it says they would buy less. Usually occurs with substituting

14. Paradoxical Demand Curve This acts “contrary” to the demand. It does so because it is concerned with “inferior goods.” Inferior goods are items that low income families purchase.

15. Elastic A change in price causes a change in demand. Ex. Chewing Gum becomes cheaper or more expensive and  our demand is affected

16. Inelastic A change in price has little or no affect on demand. Ex. Eye glasses become cheaper or more expensive. We still purchase them. Milk, gas, water, heating oil…

18. Supply Stuff (quantity)

19. Law of Supply Principle that states that more will be brought to market when the price is high and less when the price is low. This is from the viewpoint of the producer or supplier. Price  - Supply  Price  - Supply  Law of Supply = same direction = both start with S!!!)

20. Supply Curve Up-ward sloping graph showing the quantity Supplied at every possible price in the market Opposite the Demand curve

21. Changes on Supply Effected by: – Cost of Inputs – Productivity – Technology – Number of sellers – Taxes and Subsidies

22. Increase in Supply – Shifts Right

23. Surplus - supply exceeds demand Shortage - demand exceeds supply Market equilibrium - intersection point of the demand and supply curve

25. Break- Even point Amount of output needed for a firm to recover its production cost. Ex. Monster Mitts cost me $80 to produce. At $8 a glove, I have to sell 10 in order to “break even!” Point that must be sold before a firm begins to see a profit – Cost of producing a prototype and then mass producing/marketing/distributing it.

26. 3 Stages of Production Increasing –Each additional workers contributes more than the previous worker and  increases output Diminishing – Production keeps growing but by smaller and smaller amounts as workers are added Negative – total output begins to decrease because the cost of labor is greater than output produced.

27. Law of Variable Proportions Principle that dictates that if one factor or ingredient is changed; the entire output is affected. Ex. Mrs. Paul accidentally put a cup of salt in her batter rather than a cup of sugar. – She changed one ingredient/factor and it changed the taste of the whole batter

28. Principle of Diminishing Returns economic law stating that additional units of input add less and less to the total product. Ex. hot chocolate mix – Add the packet of powdered cocoa mix to 3 cups of water instead of ¾ cup as was stated in the instructions. – What do you get? - less and less hot chocolate flavor…less total product.