1.2 Market (Wip) Flashcards
What is demand?
The total amount of goods and services consumers are willing and able to buy at a given price point.
What is the relationship between demand and price?
Inversely proportional
Example: https://cdn.savemyexams.com/cdn-cgi/image/f=auto,width=1920,w=640/uploads/2022/06/L44o4OxC_1-2-2-movement-along-demand-curve_edexcel-al-economics.png
What factors change demand?
- Consumers tastes
- Price
- Advertising
- Changes to income
- Available substitutes
What causes the demand curve to shift?
Any factor that is not price changing.
What is supply?
The total amount of a good or service that will be supplied at a given price point.
What is the relationship between price and supply?
Directly proportional
Example: https://cdn.savemyexams.com/cdn-cgi/image/f=auto,width=1920,w=640/uploads/2022/06/IIlRP6jh_1-2-4-movement-along-supply-curve_edexcel-al-economics.png
What causes a change in supply?
- Price
- Supply shocks
- Changes in cost of production
- New technology
- Indirect taxation
- Government subsides
What is equilibrium price?
Equilibrium price is the point where supply and demand overlap on a supply demand graph.
Example: https://cdn.savemyexams.com/cdn-cgi/image/f=auto,width=1920,w=640/uploads/2023/03/-1-2-3-the-interaction-of-supply-and-demand.png
How do the curves shift?
Demand right = rise in demand
Demand left = decrease in demand
Supply right = rise in supply
Supply left= decrease in supply
How do the curves travel (up and down) ?
Up demand curve = contraction in demand
Down demand curve = extension in demand
Up supply curve = extension in supply
Down supply curve = contraction in supply
What is price elasticity of demand (PED)?
How sensitive a change is demand is to a change in price.
What does a PED above one mean?
Demand is highly elastic, meaning when price changes demand changes drastically.
What does a PED equal to one mean?
Demand is perfectly elastic.
What does a PED below one mean?
Demand is inelastic, meaning when price changes demand doesn’t change much.
Which types of goods experience elastic demand?
Luxury goods.
Which types of goods experience inelastic demand?
Essential goods and addictive goods.
What are the factors determining PED?
- Availability of close substitutes
- Brand loyalty
- Proportion of income spent
- Time
- Essentiality of product or service
How is PED calculated?
What is income elasticity of demand (YED)?
How much demand changes for goods and services in proportion to income.
What does a YED above one mean?
YED is highly elastic, meaning a change in income changes demand drastically.
What does a YED of one mean?
YED is perfectly elastic.
What does a YED below one mean?
YED is inelastic, meaning a change in income changes demand very little.
What are the factors determining YED?
- Proportion of income spent on good or service
- Taxation
- Type of good (inferior or normal)
- minimum wage
How is YED calculated?
