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Supply and Demand REview

Supply and Demand REview. Kenneth Bai , Bhavin Parbhu , Brian Hernan. Law of Supply and Demand. If demand for a G/S increases and supply remains the same, a shortage occurs, and the price goes up.

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Supply and Demand REview

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  1. Supply and Demand REview Kenneth Bai, BhavinParbhu, Brian Hernan

  2. Law of Supply and Demand • If demand for a G/S increases and supply remains the same, a shortage occurs, and the price goes up. • If demand for a G/S decreases and supply remains the same, a surplus occurs and the price goes down. • If demand is unchanged, and supply goes up, there’s a surplus and price goes down. • If demand is unchanged and supply goes down, there’s a shortage and price goes up.

  3. Determinants of Supply • Changes in costs of input • Changes in numbers of producers • Natural Disasters or international events • Technology • Producer Expectations • Government Policy

  4. Determinants of Demand • Changes in income • Number of Consumers • Consumer Tastes and Preferences • Consumer Expectations • Substitute Goods • Price of Complimentary Goods

  5. Elasticity and Inelasticity • Elasticity: The measurement of how changing one economic variable affects others. • Demand Elasticity: • % change in quantity demanded/ % change in price • Supply Elasticity: • % change in quantity supplied/ % change in price • Inelasticity: An economic term used to describe the situation in which the supple and demand for a good are unaffected by the price of that good increasing or decreasing.

  6. Diminishing Marginal Utility • A law stating that as a person increases consumption of a product, while keeping consumption of other products constant, thre is a decline in the marginal utility (pleasure) that person gets from each extra unit consumed. • Example: The first bite of a perfectly grilled steak, tastes much better than the 50th bite of the same steak. And a second steak, would not be as enjoyable as the first.

  7. Questions • Which is not an example of a determinant of supply • A hurricane slowing oil production in the gulf. • One of the producers goes out of business • Technology makes it faster and cheaper to produce the same good. • Price of complimentary goods • What is the definition of inelasticity? • Which is an example of diminishing marginal utility? • The second piece of gum not being as satisfying as the first piece. • Doing the second homework assignment is not as enjoyable as the first. • Eating a little bit of everything and enjoying it all from a buffet.

  8. Answers • D • An economic term used to describe the situation in which the supple and demand for a good are unaffected by the price of that good increasing or decreasing.

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