econ chapter 2 Flashcards
law of demand
shows a negative relationship between price and quantity demanded
law of supply
shows a positive relationship between price and the quantity supplied
elasticity
measures responsiveness of one economic variable to a change in another
demand
the different quantities that consumers are willing and able to buy at different prices
3 causes of law demand
- substitution effect
- income effect
- law of diminishing marginal utility
substitution effect
idea that people buy fewer units when the price goes up, because they’ll buy a substitute instead
price doesn’t shift the demand curve it only…
moves up or down the line
shift to the left =
decrease
shift to the right =
increase
Tina Never Put It Forward
tastes & preferences
number of consumers
price of related goods
income
future expectations
price of related goods
substitutes vs. complements
income
normal goods vs. inferior expectations
a change in price causes a change in
Qd
Quantity demanded (Qd)
the amount of a good that buyers are willing to purchase at a given price
supply
the different quantities that producers are willing to and able to sell at different prices
Polly Never Takes Guests Forward
Price of resources
Number of producers
Technology
Government Intervention
Future expectations
Price elasticity of demand
measures the responsiveness of the Qd of a good to a change in its price (absolute value)
elastic demand
if PED > 1, demand is elastic, this means consumers are highly responsive to price changes
inelastic demand
if PED < 1, demand is inelastic, consumers are less responsive to price changes
unitary elastic
if PED = 1, percentage change in Qd is equal to percentage change in price
perfectly inelastic
if PED = 0, change in price have no effect on Qd
price elasticity of supply
measures the responsiveness of the quantity supplied of a good to a change in its prices
cross-price elasticity
measures the responsiveness of the Qd of a good to a change in the price of different goods and services
if XPE is positive
the two goods are substitutes
if XPE is negative
the two goods are negative
income elasticity
measures the responsiveness of the Qd of a good to a change in income
if income elasticity is positive
its a normal good
if income elasticity is negative
its an inferior good
surplus
when p is too high and above equilibrium
shortage
when p is below equilibrium
