1.2 How Markets Work Flashcards
Demand definition
Ability + willingness to buy a good at a given price and a given time period
Factors to shift demand (PASIFIC)
Population, Advertising, Substitutes, Income, Fashion & Trends, Interest rates, Compliments
PED (Q before you P)
The responsiveness of D to a change in the price of a good
Value for elastic PED
-1 to infinity
Value for inelastic PED
0 to 1
Factors affecting PED (PANTA)
Price in proportion to total income, Availability of substitutes, Necessity, Time period, Addictiveness
Significance of PED and Tax
More elastic the D curve, the lower the incidence of tax on the consumer (and vice versa)
Significance of PED and Subsidies
Subsidy = affects costs. Elastic D means that consumer sees a small fall in price whilst producer gains a lot in extra rev
Income Elasticity of Demand (YED)
The responsiveness of D to a change in income
YED for an inferior good
less than 0
YED for a normal good
greater than 0
Cross Elasticity of Demand (XED)
The responsiveness of D for one product (A) to a change in price of another product (B)
XED for a substitute
greater than 0
XED for a complementary good
less than 0
Supply
The willingness + ability to provide a good at a particular price at a particular time period