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Transcript
3.02 Interpret the theory of supply and demand Supply vs. Demand Supply- the amount Producers are willing and able to produce and sell - Seller’s Market Demand- the Customer’s willingness and ability to buy the products - Buyer’s Market The law of supply Price of a product increases, quantity of supply increases Price of a product decreases, quantity of supply decreases The law of demand Price of a product increases, consumer demand decreases Price of a product decreases, consumer demand increases When does surplus occur? Supply exceeds demand Prices are too high Consumers buy competitor’s product When does shortage occur? Demand exceeds supply (scarcity) Customers purchase products regardless of the price When does equilibrium occur? Supply = Demand Producer and Consumer are satisfied on the same price Elasticity is… Elastic demand changes as demand changes - Example: Cheeseburger Inelastic demand rarely changes as demand changes - Example: Gasoline What might affect elasticity? Availability of substitutes Brand loyalty Price relative to income Luxury vs. necessity (want vs. need) Urgency of purchase