4.1.3 Price determination in a competitive market Flashcards
4.1.3.1 The determinants of the demand for goods and services, 4.1.3.2 Price, income and cross elasticities of demand, 4.1.3.3 The determinants of the supply of goods and services, 4.1.3.4 Price elasticity of supply, 4.1.3.5 The determination of equilibrium market prices, 4.1.3.6 The interrelationship between markets.
What does a demand curve show
The relationship between price and quantity demanded
What causes a shift in the demand curve
Changes in income, tastes(trends), prices of related goods, population, or expectations.
Seasonal factors and government policy (taxes&subsidies) {regulations}
What does a supply curve show
The relationship between price and quanitity supplied
What causes a shift in the supply curve
Changes in production costs, technology advancements, taxes&subsidies, number of suppliers, expectations of future prices, natural factors, government regulation and prices of related goods→(Subsitute or complementary)
What is Price Elasticity of Demand
PED measures how quantity demanded responds to price changes
PED = %change in quantity demanded/%change in price
If PED > 1, is demand elastic or inelastic, why?
If PED > 1, demand is elastic. This means the % change in quantity demanded is greater than the % change in price. For example, if price increases by 10%, quantity demanded falls by more than 10%, indicating consumers are highly responsive to price changes.
What does negative Income Elasticity of Demand (YED) indicate
The good is inferior (demand falls as income rises)
What does a positive Cross Elasticity of Demand (XED) indicate
The goods are substitues
What does Price Elasticity of Supply (PES) measure?
How quanitity supplied responds to price changes(costs)
What is market equilibrium
Where demand and supply curves intersect, determing equilibrium price and quanitity
