Demand, Supply and Equilibrium Flashcards
What is the market
Where buyers and sellers come together to determine the price of a good
What is the law of demand
The lower the price of a commodity, the higher the demand for it
List other factors that determine demand other than price (4)
Population changes - eg increase and changes in demographics
The labour market / employment levels / income
Incentives ie first time buyers
The price of subsitute goods
What is the law of supply
Increasing price will lead to increased supply
Non-price factors that’ll affect supply in the real estate market (5)
Construction costs
Profitability
Planning permission
Taxation
Financial/monetary policies
What happens if prices are above or below supply/demand?
Markets will automatically adjust to equilibrium
What does elasticity measure?
The responsiveness of supply and demand to changes in factors that affect them
What is price elasticity?
The ratio between the percentage change in the quality demanded, or supplied and the corresponding change in price
What is price elasticity of supply?
The responsiveness of supply to a change in price
How is the price elastisity of supply of housing in the uk
Very low
What is the Price elasticity of demand?
The responsiveness of quantity demanded to a change in price
PES meaning
Price elasticity of supply
What is the price elasticity of supply (PES) determined by
The existence of stocks ie vacant property
Why is the price elasticity of supply (PES) so low in the uk? (3)
planning regulations, high construction costs and shortages of skilled workers
How do markets allocate resources?
Through the price mechanism
What do prices reflect?
Consumer preferences and producer profit requirements
