L2 Flashcards
What does the supply curve describe?
Relationship between the quantity of a good or service that producers are willing to sell and the price of the good or service
What is the basic principle of supply and demand?
The higher the price, the more that firms are able and willing to produce and sell
What is the meaning of a shift in the supply curve?
The firms willingness to produce does not only depend on the price;
Change in labor wage
What is the demand curve?
Relationship between the quantity of a good that consumers are willing to buy and the price of the good (opposite to supply curve basically)
What causes a shift in the demand curve?
Ex. income of buyer changes
What is the demand of substitute goods
Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other
What is the demand for complement goods
Two goods for an increase in the price of one leads to a decrease in the quantity demanded of the other
What is elasticy?
Percentage change in one variable (like, number of cloths) resulting from a 1-percent change in another variable (like, price of cloth, income).
What is price-elasticy?
Percentage change in the quantity demanded (like, number of cloths)
resulting from a 1-percent change in price (like, price of cloth)
What is income-elasticy?
Percentage change in the quantity demanded (like, number of cloths)
resulting from a 1-percent change in income (like, monthly income of the
potential buyers)
What is cross-price elasticity of demand
Percentage change in the quantity demanded (like, food oil) of one good
resulting from a 1-percent change in price of another good (like, price of
margarine).
What are the two extreme cases of elasticity, give examples
- Infinitely elastic demand
Consumers buy as much as they can get at a single price and nothing at any higher price. - Completely inelastic demand
Consumers buy fixed quantity of good regardless of its price
