Unit 1 Notes - Topic 3 (Supply and Demand)

·      - Demand – The quantities that people are willing and able to buy at various prices. (Demand goes to the sand and Supply goes to the sky.)

·      The Law of Demand – There is an inverse relationship between price and quantity demanded

·      Change in Price = A change in quantity demanded. 

-       What causes a “change in demand?”

1.     A change in price

-        

-       Price Elasticity of Demand

1.     Inelastic Demand

·      Demand for a good will not change or may change very little regardless of price

·      “Needs”

·      Few or no substitutes (Gas, Milk, Soap)

2.     Elastic Demand

·      Demand will change greatly given a small change in price

-      -  Supply - The quantities that suppliers/producers are willing and able to produce or sell at various prices

· 

·      Total Revenue – P x Q

·      Fixed Cost – A cost that does not change no matter how much is produced.

-       Mortgage

-       Insurance

-       Salary

·      Variable Cost – A cost that rises and falls depending upon how much is being produced

-       Electricity

Marginal Cost – The cost of producing one more unit of a good

Key Things to Remember - 
1. There is an inverse relationship between price and quantity demanded (P^Qv)
2. There is a direct relationship between price and quantity supplied (P^Q^)
3. Substitute Goods - Good that serve roughly the same purpose
4. Complimentary Goods - Goods that are often consumed together
5. Quota - Limit
6. Decrease = Left, Increase = Right