1.2 Demand & Supply Flashcards
What is demand
is the amount customers are able and willing to buy of a produt
Factors leading to a change in demand
seasonality, changing fashion & taste
supply
the amount of a product a supplier is willing to sell
factors leading to change in supply
changing technology, external shocks
Price elasticity of demand
how much demand changes based on changes in price
Formula of PED
change in quantity demanded % / change in price %
if PED >1
the product is price elastic , meaning demand is more responsive to change in price
Formula for % change
new value- old value / old value x 100
if PED between 0&1
prodduct is price inelastic , demand is less responsive to change in price
Income elasticity of Demand
How much demand changes based on changes in income
Formula for YED
% change in Demand/ % change in income
YED > 1
Luxury, demand rises when income rises
YED = 0-1
necessity , demand is not responsive to change in income
YED = < 0
normal good
demand rises when income rises
