1.2 Flashcards
what is demand
the number of goods / services customers are willing and able to buy
what kind of relationship is there between demand and price
there is an inverse relationship
which way does the demand curve slope (between price and quantity)
downwards from left to right (left is high right is bottom)
what is the relationship between supply and price?
direct
as price increases, supply increases
which way does the supply curve slope?
upwards from left to right ( like one of these : / )
what is equilibrium price?
the point at which sellers are satisfied with the rate / quantity of sales and buyers are satisfied that the product is worth the pprice they paid
what does the diagram look like?
price is y axis
quantity is x axis
two lines form an x
equilibrium is where the xs meet
what is price elasticity of demand (PED)?
helps us calculate how responsive the change in quantity demanded will be to a change in price
how to calculate price elasticity of demand?
(%change in quantity demanded / %change in price)
interpreting PED values : x > 1
type of good : elastic
demand is more responsive to a change in price
eg: luxury products (foreign holidays, jewellery, branded goods, eating out )
interpreting PED values: X is between 0 and 1
type of good : inelastic
demand is less responsive to a change in price
necessities (bread, milk, toothpaste)
addictive products(cigarettes, sugary foods)
what pricing strategy is best for price inelastic products?
price skimming
what pricing strategies are best for inelastic products ?
competitive pricing
what is income elasticity of demand? (YED)?
shows how responsive a change in quantity demanded is to change in income
interpreting YED : x > 1
type of good : luxury
demand rises when income rises
(income inelastic)
