Chapter 7-12 Flashcards
Define Demand
the quanitity of a good or service that consumers are willing and able to buy at any given price.
Define quantity demanded
the amount consumers are willing and able to buy at A given price
What is the relationship between demand and price
inversely related
A movement along the demand curve is caused by what
Change in price
Shifts of the demand curve are caused by what?
anything other than price
Causes of changes in Demand (6)
Change in price of a substitute
Change in price of a complement
A change in income
Change in tastes, fashion, or advertising
Change in demographic
Advertising campaigns
Define supply
The quantity that suppliers are willing and able to sell at any given price
What is the relationship between price and supply
direct relationship
What is a movement along the supply curve caused by
changes in price of the good
What is a shift o fthe supply curve caused by
changes in anything other than price that affect supply
Causes of changes in supply (5)
Changes in costs
subsidies
taxes
weather, disaster and war
discovery/depletion of resources
What affects the changes in the cost (2)
Changes in the cost of FoP
Changes in producivity
Define Equilibrium price
price where quantity demand and quantity supply are equal
Define surplus
when quantity supplied is greater than quanitity demanded
Define shortage
when quantity demanded is greater than quanitity supplied
Define disequilibrium
when demand is not equal to supply
What happens when there is a surplus?
producer lower price —> increase in demand and decrease in supply —> reach equilibrium
What happens when there is a shortage?
Producer increase price —-> decrease in demand and increase in supply —-> reach equilibrium
Define PED
A measure of responsiveness of quantitiy demanded to a change in price
Define elastic demand
when quantitiy demanded changes by a greater percentage than the percentage change in price.
Define inelastic demand
When quantitiy demanded changes by a smaller percentage than the percentage change in price
Equation for PED
% change in QD/ % change in price
What is it if PED > 1
elastic
What is it if 0 < PED < 1
inelastic
Determinants of PED (7)
Availability and closeness of substitutes
Proportion of income spent on the product
Luxury/necessity
Addiction/habits
Degree of brand loyalty
Ease and cost of swtiching to a substitute
How narrowly/broadly defined the marker is
what are the 3 types of unique PED curves
Perfecly price inelastic
Perfecly elastic demand
Unitary elastic
Equation for profit
profit = Revenue - cost
Define revenue
the money a firm makes from sales
Define PES
The responsiveness of supply to a change in price
Equation for PES
% change in QS/ % change in price
Define elastic supply
When the quantity supplied changes by a greater percentage than the percentage change in price
Define inelastic supply
When the quantitiy supplied changes by a smaller percentage than the change in price
What is it if 0 < PES < 1
Inelastic
What is it if PES > 1
elastic
Determinant of PES
Time taken to produce it
THe cost of changing supply
whether the good can be stored or not
3 extreme versions of PES
perfecly elastic supply
perfecly ineslatic supply
unitary supply
Applications of PES for decision making
Consumers want supply being elastic
Producers want supply being elastic
Government may be succesful giving subsidy if supply elastic
