Demand & Supply Flashcards
Demand
Willingness & ability of consumers to purchase a given good at a given price at a given time period, ceteris paribus
Supply
Willingness & ability of producers to provide a given good for sale at a given price, in a given time period, ceteris paribus
Price Elasticity of Demand (PED)
It measures the responsiveness of quantity demanded of a good to a change in its price, ceteris paribus
PED Formula
% change in Quantity Demanded/% change in Price
Price Elasticity of Supply (PES)
It measures the responsiveness of quantity supplied of a good to a change in its price, ceteris paribus
PES Formula
% change in Quantity Supplied/% change in Price
Cross Elasticity of Demand (XED)
It measures the responsiveness of a demand of a good to a change in the price of a related good, ceteris paribus
XED Formula
% change in Demand of Good B/% change in Price of Good A
Income Elasticity of Demand (YED)
It measures the responsiveness of demand of a good to a change in income, ceteris paribus
YED Formula
% change in Demand of Good/% change in Income
Factors that Shift Demand
1) Income
2) Tastes & Preferences
3) Related Goods: Substitutes
4) Related Goods: Complements
Factors that Shift Supply
1) Cost of Production (Input Price)
2) Weather & Environment (& unpredicted events)
3) Improvements in Technology
4) Price of Related Goods: Goods in Joint Supply
5) Price of Related Goods: Goods in Competitive Supply
Change in Quantity Demanded when Good is Elastic
More Than Proportionate
Change in Quantity Demanded when Good is Inelastic
Less Than Proportionate
When to use PED
1) Questions on Extent of Change
2) Questions on Revenue
given a Supply Factor
