Chap 2.2 Flashcards
whats demand
consumer must be willing and able to purchase the
commodity, which they desire. Their desire should be backed by his/her purchasing power.
whats the law of demand
states that,
price of a commodity and its quantity demanded are inversely related
what are the 2 factors of demand for a good
price factors and non price factors
what are non price factors
i. Price of the product
ii. Taste or preference of consumers
iii. Income of the consumers
iv. Price of related goods
v. Consumers expectation of income and price
vi. Number of buyers in the market
what things determine demand
- taste/ preference
- income demand
- cross demand
- consumer expectation of income and price
- number of buyer in the market
what cause movement in demand curve (quantity demand)
a fall or raise in price leads to a raise or fall in quantity demand
whats an extension of demand
downward movement along the demand curve
whats a contraction of demand
Upward movement along the demand curve
what causes a shift in demand curve (demand)
it occurs due to other factors rather than the price of a given commodity
what indicates increase in demand
Rightward shift in the demand curve
what indicates a decrease in demand
Leftward shift in demand curve
whats elasticity
its a measure of responsiveness of a dependent variable to
changes in an independent variable.
whats elasticity of demand
refers to the degree of responsiveness of
quantity demanded of a good to a change in its price, or change in
income, or change in prices of related goods
what are the 3 kinds of demand elasticity
price, income and cross
what does price elasticity mean
Means the degree of responsiveness of demand to change in price
what are the 2 ways to measure price elasticity in demand
point and arc elasticity
perfectly inelastic
change in price doesnt affect demand at all
inelastic
change in demand is less than change in price
unit elastic
chnages in demand and price are equal
elastic
change in demand in more than prices
perfectly inelastic
demand changes infinitely
what determines the price of elasticity of demand
- availability of subs
- time
- the proportion of income consumers spend for a product
- ## importance of the commodity in the consumers budget
whats an income elasticity of demand
is a measure of the responsiveness of quantity demanded to changes in income assuming all other things, including price, constant.
whats corss price of elasticity of demand
Its the responsiveness of quantity demanded for one commodity to
the changes in the prices of other commodities,
whats the cross–price elasticity of demand for substitute goods
positive
whats the cross–price elasticity of demand for complementary goods
negative
whats the cross–price elasticity of demand for unrelated goods
zero
whats supply
indicates various quantities of a product that sellers are willing and able to provide at different prices in a
given period of time, other things remaining unchanged.
whats the law of supply
as price of a product
increase, quantity supplied of the product increases. there is a positive relationship between price and quantity supplied.
what is supply determined by
price of inputs ( cost of inputs)
technology
prices of related goods
seller’ expectation of price of the product
taxes & subsidies
number of sellers in the market
weather, etc.
whats elasticity of supply
It is the degree of responsiveness of the supply to change in price.
The supply is elastic when…
when a small change on price leads to great
change in supply.
supply is inelastic or less elastic when…
when a great change in price induces only a
slight change in supply.
supply is unitary elastic
when a change in price induces a change in supply in the same amount
the supply is perfectly inelastic when…
a change in price does
not induces a change in supply
the supply is perfectly elastic when…
a change in supply
does not induces a change in price
what are determinants of price elasticity supply
- how costs behave as output is varied
-time involved
-excess capacity and unsold stocks
whats market equilibrium
Market equilibrium occurs when market demand equals market
supply
what happens when demand changes and supply remains constant
Supply being given, an increase in demand increase both the
equilibrium price and the quantity and vice versa.
what happens when supply changes and demand remains constant
Demand being given, an increase in supply increase the equilibrium
quantity and decrease equilibrium price and vice versa.
what happens if theres a combined increase in demand and supply
the quantity of the product will increase definitely. then the price remains the same.
combined decrease in demand and supply
the quantity decreases, But the change in price will depend upon the relative fall in demand and supply.
whats a maximum price fixation
its fixing the maximum price because there was an increase in demand which lead to a rise in prices
whats a minimum price fixation
its fixing a minimum price because demand has been less than supply
