CHAPTER 2: SUPPLY AND DEMAND
2.1. DEMAND
- Own Price (movement along the demand curve): Law of Demand consumers demand more of a good if its price is lower or less when its price is higher (other factors constant).
- Other factors (shift of demand curve):
– Income: When a consumer’s income rises that consumer will often buy more of many goods.
– Price of related goods
Substitute: Different brands of essentially the same good are close substitutes.
Complement: is a good that is used with the good under consideration.
– Information: Information about characteristics and the effects of a good has an impact on consumer decisions
– Tastes: Consumers do not purchase goods they dislike. Firms devote significant resources to trying to change consumer tastes through advertising.
– Government Regulations: Governments may ban, restrict, tax, or subsidize goods or services
2.2. SUPPLY
- Own Price (movement along the supply curve): Usually, supply more quantity at a higher price.
- Other factors (shift of supply curve):
– Costs of Production: The costs of labor, machinery, fuel, and other costs affect how much of a product firms want to sell. As a firm’s cost falls, it is usually willing to supply more.
– Technological Change: If a technological advance allows a firm to produce its good at lower cost.
– Government Regulations: Government rules and regulations can affect supply directly without working through costs.
2.1. DEMAND
- Own Price (movement along the demand curve): Law of Demand consumers demand more of a good if its price is lower or less when its price is higher (other factors constant).
- Other factors (shift of demand curve):
– Income: When a consumer’s income rises that consumer will often buy more of many goods.
– Price of related goods
Substitute: Different brands of essentially the same good are close substitutes.
Complement: is a good that is used with the good under consideration.
– Information: Information about characteristics and the effects of a good has an impact on consumer decisions
– Tastes: Consumers do not purchase goods they dislike. Firms devote significant resources to trying to change consumer tastes through advertising.
– Government Regulations: Governments may ban, restrict, tax, or subsidize goods or services
2.2. SUPPLY
- Own Price (movement along the supply curve): Usually, supply more quantity at a higher price.
- Other factors (shift of supply curve):
– Costs of Production: The costs of labor, machinery, fuel, and other costs affect how much of a product firms want to sell. As a firm’s cost falls, it is usually willing to supply more.
– Technological Change: If a technological advance allows a firm to produce its good at lower cost.
– Government Regulations: Government rules and regulations can affect supply directly without working through costs.
