APP ECO 4Th LESSOn Flashcards
CAUSE I'm A DUMBASS
is when there is an excess demand for the quantity supplied.
Shortage
is excess in supply.
surplus
the willingness to buy goods and services should be accompanied by the ability to buy, also called the
purchasing power
acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions.
price
– price will tend to rise. Rising prices discourage demand, and encourage firms to try and increase supply
if goods is in shortage
– price will tend to fall. Falling price encourage people to buy, and cause firms to try and cut back on supply.
if goods is in surplus
The producers can make what they want and consumers are free to purchase what they want.
market economy
quantity is less than the demand;
shortage
measures the responsiveness of the quantity demanded or supplied of a good to a change in its price.
Price elasticity
is the responsiveness of quantity demanded, or how much quantity demanded changes, given a change in the price of goods or services.
Price elasticity of demand
the percentage change in price brings about a more than proportionate change in quantity demanded.
Elastic demand
– is when an increase in price causes a smaller % fall in demand.
inelastic demand
- When the percentage change in demand is equal to the percentage change in price,
unitary elastic demand
- the PED is =0 any change in price will not have any effect on the demand of the product
perfectly inelastic
is the relationship between changes in quantity demanded for a good and a change in real income.
income elasticity of demand
are those goods for which the demand rises as consumer income rises; positive income elasticity of demand so as consumers’ income rises more is demanded at each price. These goods shift to the right as income rises.
Normal Goods
As income rises, the proportion spent on cheap goods will reduce as now they can afford to buy more expensive goods.
YED is positive
– the demand decreases when consumer income rises; demand increases when consumer income decreases)
Inferior goods
is he effect on the change in demand of one good as a result of a change in price of related to another product
Cross price elasticity of demand
The measure of the responsiveness of quantity to a change in price. It is the percentage change in supply as compared to the percentage change in price of a commodity.
Price elasticity of supply (PES)
If the cost of producing one more unit keeps rising as output rises or ____________ rises rapidly with an increase in output, the rate of output production will be limited.
Marginal Cost
- Over time price elasticity of supply tends to become more elastic. The producers would increase the quantity supplied by a larger percentage than an increase in price.
Time
- The larger the number of firms, the more likely the supply is elastic. The firms can jump in to fill in the void in supply
Number of firms
If factors of production are movable, the price elasticity of supply tends to be more elastic. The labor and other inputs can be brought in from other location to increase the capacity quickly.
Mobility factors of production
- If firms have spare capacity, the price elasticity of supply is elastic. The firm can increase output without experiencing an increase in costs, and quickly with a change in price
Capacity
Determinants of Price Elasticity of Supply
MArginal Cost
Time
Number of Firms
Mobility of factors of production
Capacity
