Chapter 3 Essay

Submitted By osmelon
Words: 649
Pages: 3

Key Points
The law of demand states that there is an inverse (or negative) relationship between the price of a good or service and the quantity of it that consumers are willing to purchase. The height of the demand curve at any quantity shows the maximum price that consumers are willing to pay for that unit.
The degree of responsiveness of consumer purchases to a change in price is shown by the steepness of the demand curve. The more responsive buyers are to a change in price, the flatter, or more elastic, the demand curve will be. Conversely, the less responsive buyers are to a change in price, the steeper, or more inelastic, the demand curve will be.
A movement along a demand curve is called a change in quantity demanded. A shift of the entire curve is called a change in demand. A change in quantity demanded is caused by a change in the price of the good (generally in response to a shift of the supply curve). A change in demand can be caused by several things, including a change in consumer income or a change in the price of a closely related good.
The opportunity cost of producing a good is equal to the cost of bidding away the resources needed for its production from alternative uses. Profit indicates that the producer has increased the value of the resources used, whereas a loss indicates that the producer has reduced the value of the resources used.
The law of supply states that there is a direct (or positive) relationship between the price of a good or service and the quantity of it that producers are willing to supply. The height of the supply curve at any quantity shows the minimum price necessary to induce suppliers to produce that unit—that is, the opportunity cost of producing it.
A movement along a supply curve is called a change in quantity supplied. A change in quantity supplied is caused by a change in the price of the good (generally in response to a shift of the demand curve). A shift of the entire supply curve is called a change in supply. A change in supply can be caused by several factors, such as a change in resource prices or an improvement in technology.
The responsiveness of supply to a change in price is shown by the steepness of the supply curve. The more willing producers are to alter the quantity supplied in response to a change in price, the flatter, or more elastic, the supply curve. Conversely, the less willing producers are to alter the quantity supplied in response to a change in price, the steeper, or less elastic, the